Harvey suffers from severe cystic fibrosis. His doctor advised him to install central air conditioning in his home to alleviate his condition by controlling temperature and regulating humidity. It cost him $12,000 and increased the value of his home by $10,000. Assuming the total of his other medical costs already exceed the 7.5% AGI limit, how much of the cost of the air-conditioning installation can Harvey deduct as a medical expense?
a. Incorrect. While capital expenditures usually are not currently deductible, an exception applies to certain medically related costs.
b. Correct. Only the excess of the cost of the medical improvement over the increase in the value of the home, or $2,000, is a deductible expense.
c. Incorrect. The increase in the value of the home by $10,000 cannot be included in medical expenses.
d. Incorrect. The full cost of the expenditure, or $12,000, would be deductible only if the improvement did not increase the value of the home.