Personal Credit Card Interest

[Chief]

These managed medicare plans are switching to those based on fee for service. Medical providers rather than using their money until reimbursed by insurance are getting their money up front from patients. This practice will further increase personal credit card debt to pay for medical expenses. The insurance companies are banking on this practice to reduce claims for medical services that are necessary to maintaining good health and early diagnostic medical procedures. I predict this plan will have tragic consequences for those retirees who barely have means to exist month by month.

I further predict that credit cards will have a large share of medical expenses on them. I know that personal credit card interest is generally nondeductible but would the portion relating to medical expenses be deductible as a medical expense on Schedule A? I will recommend to my clients who itemize that they get a credit card that is used exclusively for medical expenses. This will simplify their record keeping but add another piece of plastic to the endless array of credit cards.

Share your views please.

[OldJack]

>>Medical providers rather than using their money until reimbursed by insurance are getting their money up front from patients.<<

The only time I have seen this is with certain radical chiropractors that think they can cure cancer (a personal relative). I have not seen this with MD's in my area. I expect that interest expense on a personal credit card would not be a medical expense even if used only for those type expenses. It is still non-deductible personal interest expense.

[jainen]

AGI limit

>>interest expense on a personal credit card<<

It's not the most conservative position, but I don't see a problem with applying normal interest tracing rules to loan proceeds used for a deductible expense.

I would insist on excellent records. Since medical bills are not incurred evenly throughout the year, the math could be difficult and probably not worthwhile for most bills. Even with a separate card you would have to allocate the interest to the non-deductible expenses under the AGI limit.

[ChEAr$]

Dissent

>>interest expense on a personal credit card<<
It's not the most conservative position, but I don't see a problem with applying normal interest tracing rules to loan proceeds used for a deductible expense.

Credit card interest is still personal and therefore non deductible. If you used your
credit card to make a mortgage payment and kept on doing so, would that then make
the interest pertaining to those payments deductible?

Or a portion of interest attributable to paying your tax preparer? (grin)

[OldJack]

>>interest expense on a personal credit card<<

It's not the most conservative position, but I don't see a problem with applying normal interest tracing rules to loan proceeds used for a deductible expense.

I don't believe tracing rules or excellent records would turn personal credit card interest expense into a medical deduction except maybe interest included in the capitalized cost of medical equipment. There is no reference for personal interest to be traced for itemized deductions such as medical expense. Here is a quote of where it is traced and deductible.

Non-corporate taxpayers can't deduct "personal interest". [Code Sec. 163(h)(1)] Personal interest is all interest other than:

* Interest properly allocable to trade or business debt (other than the trade or business of being an employee).
* Interest paid on qualified education loans.
* Qualified residence interest.
* Interest considered in computing income or loss from a passive activity.
* Investment interest.
* Interest payable under Code Sec. 6601 on unpaid estate tax.....

[jainen]

interest on interest

>>If you used your credit card to make a mortgage payment<<

Very interesting -- interest on interest. Yes, I think the interest tracing rules apply in the same way to any expense. `Of course I would have to disclose to the client that, while generally based on an established principle, the position might be hard to support with existing case law.

[ChEAr$]

disclosures

>>If you used your credit card to make a mortgage payment<<

Very interesting -- interest on interest. Yes, I think the interest tracing rules apply in the same way to any expense. `Of course I would have to disclose to the client that, while generally based on an established principle, the position might be hard to support with existing case law.

Heh HEH!... Just as Irvin Shiff should have disclosed to his clients, that that
position might be hard to support! (grin)

[Chief]

Personal Credit Card Interest for Medical Expenses

Thanks to all of you who have posted on this topic.

This goes to illustrate an important point my mother made years ago. You do or not do because I said so. No questions, rationalizations and the like, do it because the IRS says so. The frontier ideals of justice and fairness to all does not apply. The IRS says no personal credit card interest and you dont allow it because IRS says so.

In conclusion you dont allow personal credit card interest for your clients.