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Discussion:Special Needs Child's Medical Expense for Specialized Van

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Discussion Forum Index --> Advanced Tax Questions --> Special Needs Child's Medical Expense for Specialized Van


Discussion Forum Index --> Tax Questions --> Special Needs Child's Medical Expense for Specialized Van

Sfbcpa (talk|edits) said:

17 March 2014
The prior CPA took a lot of deductions on this van including all the gas, maintenance and insurance on the specialized van to transport their daughter everywhere under Medical Expenses. She is completely disabled since birth. One of the things the prior CPA did was to claim depreciation on it and also on their house that is owned by the trust! So right away I have been skeptical of his work since the IRS does not allow depreciation as a medical deduction. They could have expensed the portion of the van that was just the increase in cost due to the specialized equipment installed when they bought it, but not depreciate it. Not sure what is going on with depreciating the house. Never seen that and it is just a pretty basic house with minor medical updates from prior years.

So my main question is whether or not the insurance on the van would be deductible. The IRS publication 502 states that insurance is not deductible transportation cost but what about for a specialized van? Also, I am not sure about the maintenance and should the parents be keeping track of the mileage to her special school and medical appointments.

Nilodop (talk|edits) said:

17 March 2014
I surely agree that the van could have and should have been deducted as a medical expense (that is, the increase as you describe) in the year paid. The law says "There shall be allowed as a deduction the expenses paid during the taxable year…" I have never seen (nor have I looked for) a discussion of doing it through depreciation. I'd have to think about it a bit, but offhand, I'd say it is not a proper deduction.

Same principle applies to the house. The previous "minor medical updates" would have/should have been deducted in the years paid to the extent they did not increase the value of the house. Pretty well established.

I am not aware that the cost of insurance for such a van exceeds the cost for a regular van. I think not, but maybe… In any case, the cost of transportation can be addressed by others. Surely the mileage records matter, as do the records to support whatever is deductible as transportation. There is a medical mileage rate, and I guess also a choice to deduct actual. I'll watch this post to find out those answers.

Nilodop (talk|edits) said:

17 March 2014
Also, what is the trust to which you refer? Special needs trust?

Sfbcpa (talk|edits) said:

17 March 2014
Yes, I picked up another Special Needs trust client.

Kevinh5 (talk|edits) said:

18 March 2014
The medical mileage rate specifically does NOT include depreciation, because depreciation is not a medical expense. The rate is statutory.

Sfbcpa (talk|edits) said:

19 March 2014
That is what I thought too. Thanks Kevinh5.

Ckenefick (talk|edits) said:

20 March 2014
The concept of depreciation is a "business" concept, to recover one's cost or investment, the idea of which is match the deduction with the income that the asset helped produce. This logic is inapplicable in the personal context, including the context of medical expenses.

Dennis (talk|edits) said:

20 March 2014
Uh...the funding of the trust kind of matters. If it is self settled under (d)(4)(A) it would be reported as grantor to the disabled child. If it is third party settled (by the parents) I would question retained interest. I have seen the entire cost of a special needs van claimed as a medical deduction in the year of purchase.

Sfbcpa (talk|edits) said:

21 March 2014
It is a self-settled trust and the trust paid for the van. I figured the other CPA did it incorrectly by depreciating the van and I figured it would be an outright deduction of at the least the value of the medical upgrades, but perhaps the entire cost would have been best. She had enough medical deductions anyway that year and did not need anymore to offset her taxes.

My question is since the van is owned by the special needs self-funded irrevocable grantor trust, is it okay to deduct the van insurance, all gas and maintenance as a medical deduction?

Dennis (talk|edits) said:

21 March 2014
All of the income and all of the deductions go on the disabled beneficiary's return. There would no entries on the fiduciary income tax return. The only effect you will see that differs from a situation in which the trust did not exist at all is that administration expenses are an itemized deduction subject to 2%.

I think it is fine to deduct the van expense under medical.

Nilodop (talk|edits) said:

23 March 2014
I have seen the entire cost of a special needs van claimed as a medical deduction in the year of purchase. Dennis, would this be on the basis that the van cost relates only to the sick person, in its entirety? Would your answer be different if the van was, for example, the only family vehicle, and was used for all the usual family-car uses as well as the transportation of the sick person?

I think it is fine to deduct the van expense under medical. All the expenses, including insurance and maintenance? If so, would your answer change depending on the answer to my above questions?

Dennis (talk|edits) said:

23 March 2014
if the van was, for example, the only family vehicle

And if a double amputee lets his nephew use his only wheelchair?...♫

Nilodop (talk|edits) said:

23 March 2014
A specialized van and a wheelchair are kind of different in this context, don't you think? Do you disagree with the IRS position as spelled out in a number of rulings and, of course, in the regulation?

Nilodop (talk|edits) said:

24 March 2014
Bump. Dennis, I am hoping you will respond further. I have a situation where a 4/15/14 refund claim may be in order if I can find some authority for deducting the entire cost of the van where it is also the family vehicle. All the authority I can find would not support that treatment unless the cost of the van and its operating expenses relate only and entirely to the sick person. Thanks.

Ckenefick (talk|edits) said:

24 March 2014
aren't those words from the reg: "relate(d) only"

Nilodop (talk|edits) said:

24 March 2014
And in many rulings.

Dennis (talk|edits) said:

24 March 2014
Note that the "family" does not own the van. The trust has ownership. The Trust is bound by law as to what it can an cannot do. If what you are saying is that the Trustee is using Trust assets for personal benefit that is a Medicaid issue but I'm not to sure the IRS gets involved. I suppose parents might recognize embezzlement income...♫

Suppose disabled kid has a special bed and during a period while he is hospitalized the family has company.

Nilodop (talk|edits) said:

25 March 2014
I was not referring to OP or a special needs trust. A simpler situation. Husband buys specialized van for use in transporting disabled wife. Husband also uses said van for all normal family uses.

Dennis (talk|edits) said:

25 March 2014
In which case the deduction is the cost of the lift, etc. Same principle as a ramp for the front entrance to the house.

Nilodop (talk|edits) said:

25 March 2014
Thank you. That's how it was claimed. What threw me was that, as a grantor trust (in the OP), I thought the expenses it paid would be treated the same as if paid by the disabled taxpayer/beneficiary. Instead, the trust is essentially enabling a 100% deduction where a direct payment by the taxpayer would have been limited to the excess costs, as you describe above. Interesting.

Dennis (talk|edits) said:

25 March 2014
Bear in mind that the Trust is, by law, for the sole benefit of.

Ckenefick (talk|edits) said:

25 March 2014
That is a pretty critical distinction and makes complete sense.

Nilodop (talk|edits) said:

25 March 2014
Bear in mind that the Trust is, by law, for the sole benefit of.

That is a pretty critical distinction and makes complete sense.

Understood and agreed. But would we not get the same result without the trust if the medical equipment is prescribed and purchased for the sole benefit of…? Like Dennis's wheelchair and special bed examples above.

Ckenefick (talk|edits) said:

25 March 2014
We'd get the same result. It would fit into "related only" language.

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