The number of children affected by neurological conditions continues to skyrocket. The most recent estimates are 1 in 11 children is affected by attention deficit hyperactivity disorder (ADHD) and 1 in 36 children is affected by autism spectrum disorder (ASD).

Some are affected by both.

Other conditions that may require special medical treatment include cerebral palsy, Down syndrome, traumatic brain injury and other learning disabilities. Often these conditions require therapies and treatments that go beyond a typical doctor’s visit and may not be covered by insurance. Parents wonder if those expenditures not covered by insurance might be tax deductible. Often, they are!

IRS Code Sec. 213(d)(1)(A) defines “medical care” to include amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body.

There are at least two Revenue Rulings (69-607 and 78-340) that confirm neurological disorders and severe learning disabilities are medical conditions covered under IRC 213. Sometimes expenditures might look like personal expenses, but for these individuals, they are medical in nature. Jacobs v. Commissioner, 1974, established a “but for” test:

If the expenditure is not wholly medical in nature it must be (a) an essential element of the treatment and (b) not otherwise incurred “but for the condition the expenditure would not have been made.” 

Examples include therapeutic horseback riding, music therapy, aqua therapy, braille books, specially designed seating, bedding, safety equipment, home alarm systems and more.

As children grow up and become young adults there may be other expenditures, including job coaching, educational therapists and support for college or university success, special living arrangements and more. Medical expenses are deductible for “other dependents” if the only test they do not meet is the support test. Also, a divorced parent may claim medical expenses for a child even if the rules for separated or divorced parents do not allow them to claim the child as a dependent.

The key to capturing all deductible medical expenses is to obtain an understanding of the individual’s “Plan of Care.” Parents should work with their child’s physician, and if applicable the local regional center, to ensure they have a written plan of care that documents all services, supports and treatments their child requires.

It is essential that the entire course of treatment be under the supervision of appropriate medical personnel.

In the case of home improvements, the costs are deductible to the extent they exceed any increase in the home’s fair market value [Reg. 1.213-1(e) (1) (iii)].

Such improvements could include central air conditioning for someone with COPD, an elevator or the installation of a swimming pool if that was the only means of providing aqua-based therapy. For items such as the elevator or the pool, the maintenance costs would be similarly deductible.

Improvements that have no effect on the home’s fair market value can be claimed as a medical expense (Rev. Rul. 87-106, 1987-2 CB 67). Examples would be the cost of retrofitting a home to allow a wheelchair or the cost of removing lead paint. Lead poisoning can resemble and complicate other conditions, such as autism.

Also, parents who attend conferences to obtain medical information concerning treatment and care for their child may deduct the admission and transpiration costs, along with related books and materials. A parent’s attendance is considered to be primarily for and essential to the care of the dependent if:

• Attendance at the conference has been recommended by a medical provider treating the child;

• The conference provides medical information concerning the child’s condition—specific issues not just general wellbeing; and

• The primary purpose of the visit is to attend the conference.

Note that the costs of food and lodging at a conference are not deductible.

Legal expenses incident to medical care have been allowed as a medical expense deduction only when they are “‘necessary to access a method of medical treatment’” (Gerstacker v. Commissioner [69-2 USTC P 9580]). Often parents will enter legal battles with school districts over placement of their child. The key distinction is whether the legal expense was essential to the child obtaining the placement or treatment. Two examples here might help:

1. The child’s school is not meeting the child’s learning needs. The parent withdraws the child and enrolls the child in a private school with trained teachers and appropriate supports. The parent then sues the school for reimbursement. The cost of tuition is a medical expense, but the legal fees are not. The parent made this decision without the school’s consent.

2. The parent and medical team request the school provide therapy or other service at the school site. The school disagrees. The parent hires an attorney to attend meetings to compel the school to provide the services. These legal fees are medical expenses because the parent cannot hire a therapist to provide a service in a public school; only the school can do that.

The number of individuals with special needs continues to climb. Many of those affected are becoming young adults whose needs will change. It is important that our profession be aware of the tax implications related to the increased cost of caring for individuals with special needs.