I need to self-pay for surgery which will be performed in January 2024. The doctor requires me to pre-pay in 2024. I will have a smaller AGI in 2023 than I will in 2024 (as I will start collecting SS in 2024). Which year may I take the medical deduction on schedule A? For discussion purposes let's say my AGI is $80K in 2023 and $120K in 2024. And let's say the surgery is $40K. Please advise. Thanks!
It is entered on the tax return in the year paid. So you will enter the medical expenses on your 2023 tax return if paid in 2023.
Medical expenses can be entered as a deduction in the year in which you PAY the medical bill. You say the surgery will cost $40K-----is any of that being covered by insurance? You can only use the amount that you pay out of pocket---not any amount covered by health insurance.
MEDICAL EXPENSES
The medical expense deduction has to meet a rather large threshold before it can affect your return. The amount of medical (including dental, vision, etc.) expenses that will count toward itemization is the amount that is OVER 7.5% of your adjusted gross income. You should only enter the amount that you paid in 2023—do not include any amounts that were covered by insurance or that are still outstanding. Of course, your medical expenses plus your other itemized deductions still have to exceed your standard deduction before you will see a difference in your tax due or refund.
To enter your medical expenses go to Federal>Deductions and Credits>Medical>Medical Expenses
2023 STANDARD DEDUCTION AMOUNTS
SINGLE $13,850 (65 or older/legally blind + $1850)
MARRIED FILING SEPARATELY $12,850 (65 or older/legally blind + $1500)
MARRIED FILING JOINTLY $27,700 (65+/legally blind) ) + $1500 per spouse
HEAD OF HOUSEHOLD $20,800 (65 or older/blind) + $1850)
Regarding question, "You say the surgery will cost $40K-----is any of that being covered by insurance?". The short answer is no. My surgeon has opted out of Medicare so I have to self-pay for the surgeon's fee which will be approximately $40K (out of pocket). I am married filing jointly and my wife and I are >65 so standard deduction is $30,700.
So it sounds like if I PAID in 2023 the deduction would need to be for 2023, right? Even if surgery is PERFORMED in 2024, right?
That is correct. The deduction is used in the year that you pay the bill.
A quick glance at the Law and the Regulation seem to say "paid during the taxable year". However, IRS Publication 502 says:
"You can include only the medical and dental expenses you paid this year, but generally not payments for medical or dental care you will receive in a future year."
https://www.irs.gov/publications/p502#en_US_2022_publink1000178852
To me, that seems to say it would not be on your 2023 return. But I'm not sure what authority that statement in the Publication was based on. But I haven't had a chance to really dig into the matter to research it.
Just as an aside---I guess I would be looking for a different surgeon if the surgeon is refusing to accept Medicare and wants to be paid $40K in advance of the surgery. Or is it some sort of cosmetic surgery not covered by Medicare?
And does it make a difference if I use a credit card? So if I charge the credit card in 2023, but the payment isn't due until Jan 2024? Is it considered paid in 2023 or 2024? Also, not cosmetic surgery but rather surgery on my neck.
Please let me know if you learn anything further about this scenario.
@Cris wrote:
And does it make a difference if I use a credit card? So if I charge the credit card in 2023, but the payment isn't due until Jan 2024? Is it considered paid in 2023 or 2024? Also, not cosmetic surgery but rather surgery on my neck.
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.
@Cris wrote:
And does it make a difference if I use a credit card? So if I charge the credit card in 2023, but the payment isn't due until Jan 2024? Is it considered paid in 2023 or 2024? Also, not cosmetic surgery but rather surgery on my neck.
For tax purposes, the deduction occurs when the provider is paid, no matter if you pay by cash or some kind of loan that you pay off later.
@Cris wrote:
Please let me know if you learn anything further about this scenario.
The Tax Code (law) does not contain that limitation in section 213, nor is it contained in the Federal Regulations that explain and codify the law.
https://www.law.cornell.edu/uscode/text/26/213
https://www.law.cornell.edu/cfr/text/26/1.213-1
I suppose the limitation could be someplace else, or maybe whoever wrote the publication inserted the limitation for some other reason. (It would not be the first time that a publication says something that is not actually in the law.)