Prepaid Medical Expense

[peanut]

Purchased ( ordered) Motorized wheel chair $ 15000 with credit card Dec 2016----won't receive until 2017. What year deductible? Am aware of Rev Rulings on advance payment retirement home.

[DaveinTexas]

You can start here

Good question, I found this from Reg §1.213-1
(a)Allowance of deduction
(1) Section 213 permits a deduction of payments for certain medical expenses (including expenses for medicine and drugs). Except as provided in paragraph (d) of this section (relating to special rule for decedents) a deduction is allowable only to individuals and only with respect to medical expenses actually paid during the taxable year, regardless of when the incident or event which occasioned the expenses occurred and regardless of the method of accounting employed by the taxpayer in making his income tax return. Thus, if the medical expenses are incurred but not paid during the taxable year, no deduction for such expenses shall be allowed for such year.

Now, this reg, as you read into it, mentions a 3% AGI threshold (back in the 60s) so has it been superceded/changed/amended? I don't know the answer to that question, but maybe this will lead you where you need to go. The key wording in this Reg, in my opinion, is "regardless of when the incident or event which occasioned the expenses occurred". That, to me, is the deal maker. Take the expense in the year paid.

If this equipment is something to be "placed into service" as in a business asset, forget what I just said. Motorized chair races are becoming a hit these days!!! That's a joke...

[RitaB]

I'm going with 2016

Well, I know your question deals with not getting the chair until 2017, but I found this case: In Granan v Commissioner, USTC ruled that a taxpayer who used a bank card to pay a hospital bill in 1964, and paid the bank in 1965, had to use the deduction in tax year 1964.

http://www.leagle.com/decision/197180855bztc753_1731.xml/GRANAN%20v.%20COMMISSIONER

"We know of no case dealing with the deductibility of payments on a loan obtained in a previous year to pay medical expenses. However, the general rule is that when a deductible payment is made with borrowed money, the deduction is not postponed until the years in which the borrowed money is repaid. Irving Segall, 30 T.C. 734, 739-740 (1958); Hazel McAdams, 15 T.C. 231, 235 (1950), affd. 198 F.2d 54 (C.A. 5, 1952); E. Gordon Perry, 28 B.T.A. 497, 500 (1933); Robert B. Keenan, 20 B.T.A. 498, 499 (1930); Edwin R. Crawford, 11 B.T.A. 1299, 1302 (1928); Patrick v. United States, 186 F.Supp. 48, 52 (W.D. S.C. 1960), affd. 288 F.2d 292 (C.A. 4, 1961), reversed on other grounds 372 U.S. 53 (1963). The rationale for the rule is that taxpayers should not be able to elect the year in which expenses can be deducted from income. Robert B. Keenan, supra."

[taxea]

deduction is taken in year paid. If the credit card is not paid in full each month I would determine how much of the monthly payment is for the wheelchair and deduct that on an annual basis until paid.

[Gene V]

From Publication 502

deduction is taken in year paid. If the credit card is not paid in full each month I would determine how much of the monthly payment is for the wheelchair and deduct that on an annual basis until paid.

If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged.

[JohnH]

Interesting question since the device won't be delivered until 2017.

There's no doubt the basic rule is that medical expenses paid by credit card are deductible in the year the credit card charge is made (not when the credit card company is paid). A credit card charge is no different than taking out a loan to pay a medical bill and then making loan repayments over more than one year.

Maybe the closest similarity would be getting braces. If the orthodontist is paid in full in 2016, then the medical expense is deductible in 2016. This is true even if there are follow-up visits, adjustments, and subsequent removal in 2017 or beyond.

So it seems the 2016 deduction is supportable on both counts (timing of payment and receipt of services/product). This is a departure from the rules we would use for depreciable equipment for a business.

[Roland Slugg]

That must be one fancy wheelchair! I spent a few minutes searching online, and the most expensive motorized wheelchair I found was the Karman XO-505 (Multi Power Function Power Standing Wheelchair-18") priced at $12,950. I wonder if that $15,000 mentioned in the OP was supposed to be $1,500. Lots of them in that price range.

Under Code §213(a) only medical expenses actually paid during the tax year are deductible, so the taxpayer is probably on safe ground deducting the chair's cost in 2016. However, there is some doubt. Advance payment of an anticipated medical expense doesn't qualify for a current deduction unless there is a contractual obligation to pay in the current year.

[rtsietsema]

Expensive...yes!

The cost could well be $15,000. My brother's wheelchair, customized due to his size and nature of his disability, was around $30,000. And that was 10 years ago!

That being said, because of his disability and being required to keep his mobility, the cost was covered by insurance. Be sure to check if insurance will be paying a portion of the bill later.

[FEDUKE404]

Prepayment of medical expense

I think there is a distinct difference between paying for an item (wheelchair) versus future services (orthodontics). That having been said, I generally have no problem deducting a large payment for braces, especially when something resembling a contractual agreement is presented. FWIW, I've often found the professionals will discount a one-time up-front payment. It never hurts to ask!

As for the specifics of the wheel chair expense: Basic Tax 101. . .a single credit card charge was made in 2016, so you have a (potential) 2016 tax deduction. When/how/if you pay the credit card company is essentially irrelevant.

FE

[MANDAN]

How about prepaid special assessment?

[Snaggletooth]

Date of the Illness

Many responses, but I have yet to hear anything about when the medical "illness" occurs. If he needs a wheelchair, the malady definitely exists in 2016 (and probably earlier, for that matter).

If a taxpayer was diagnosed with diabetes on Dec 15, 2016, has further bloodwork scheduled and returned on Dec 26th, then has to pay an advance for Novo Nordisk drugs from Belgium on Dec 30th, and takes delivery by Jan 6 2017, what would our answer be?

There are several dates, which can span several days...
1. When did the illness occur?
2. When did the diagnosis occur?
3. When was payment made? (Cr card has been upheld as "payment" many times)
4. When did physical delivery occur?

I believe the key to deductibility is attached to Item 3. Other above factors go in both directions - forward to delivery but also backward to illness and diagnosis.

[JohnH]

Then there's also the "when in doubt, deduct" concept. If the deduction is not in question, an only the timing is unclear, the best course of action is to deduct in the earlier year (assuming marginal tax rate is about the same in both years). That way, you never get in trouble over an issue with the SOL in an audit of a subsequent year.

[FEDUKE404]

Going the other route. . .

With the facts given (a single timely payment for a specific medical item that cannot be delivered until the next calendar year) I have zero problems deducting when the $15k was actually paid. Most of use have agreed the actual credit card charge itself constitutes "payment."

(Can you have an "assessment" on a wheel chair ? ? ? ? )

Devil's advocate inquiry: If not deducting in the year paid, for whatever reason you may choose, how exactly do you plan to deduct the cost of a medical item in a later year when you made *ZERO* payment for the medical item during that year?

Reminds me of the old client question "I forgot this contribution last year. Can I Just add it to this year's list?"

Happy New Year.

FE

[peanut]

Lets Read the TAX BOOK

Please go to bottom of page 4-4 & top of the page 4-5 Re: Prepaid medical expense- see future services- deductible in 2017. 100 % deductible in 2017 in full- Trump plan

[JohnH]

With the facts given (a single timely payment for a specific medical item that cannot be delivered until the next calendar year) I have zero problems deducting when the $15k was actually paid. Most of use have agreed the actual credit card charge itself constitutes "payment."

(Can you have an "assessment" on a wheel chair ? ? ? ? )

Devil's advocate inquiry: If not deducting in the year paid, for whatever reason you may choose, how exactly do you plan to deduct the cost of a medical item in a later year when you made *ZERO* payment for the medical item during that year?

Reminds me of the old client question "I forgot this contribution last year. Can I Just add it to this year's list?"

Happy New Year.

FE

My usual answer to that question is, "It really isn't going to make a big difference since that $12 contribution won't affect your results very much in either year."