Is there a tax break for home modifications?

Springrain asked...

We are going to add on to our house to have my mother live with us. She is going to help pay for some of the addition. Is there any special tax write off for this - for her or us?

Expert Answer

Steve Weisman hosts the nationally syndicated radio show A Touch of Grey, heard on more than 50 stations, including WABC in New York City and KRLA in Los Angeles. He is a practicing lawyer specializing in estate planning and is admitted to practice before the United States Supreme Court. He's a public speaker and commentator who has appeared on many radio and television shows throughout the country, and he's the legal editor of Talkers magazine, the preeminent trade publication of talk radio. His latest book is The Truth About Avoiding Scams.

Your mother may wish to buy an interest in your home, such as a life estate whereby she would have the ability to live in the home throughout her lifetime. Although the laws differ somewhat from state to state this would permit some of her investment in the home improvements to be tax deductible while protecting the home from being able to be a countable asset should she later require Medicaid. You should check with an elder law attorney in your state to see how the law in your state will specifically apply.

Once she has an ownership interest in the home,the cost of homeimprovements directly related to medical care or to make the home more acessible to her with any physical limitation she may have may be deductible. The deductible amount of hte cost of the improvement is determined according to IRS regulations by subtracting from the actual cost of the improvement the increase in the value of the property as a result of the improvement. As an example, the IRS regulations cite an eleveator installed in a home to assist a person whose hear disease made it difficult to climb stairs. According to the IRS, if the installation of the evlecator cost $8,000 and the value of the home increased by $4,400, teh deductible amount would be $3,600.

Additionally, the IRS specifically allows certain home improvements as captial expenses that qualify for tax deductiblility as medical expenses, but does not consider them to increase the value of your home. These include building entrance ramps, widening doorways, installing railings in bathrooms, lowering kitchen cabinets and landscaping to provide easier access. You should consult an accountant for specific advise.