Parents should make sure they are taking advantage of all tax breaks for their special needs children. Many conditions covered by IDEA (Individuals with Disabilities Education Act), including autism and learning disabilities, qualify for special treatment.
There are numerous tax breaks for education, but the most important one for many special-needs students isn’t an education break per se. Instead, it falls under the medical-expense category….
In fact, tax rules allow medical deductions for “diagnosis, cure, mitigation, or treatment…primarily to alleviate or prevent a physical or mental defect or illness” (IRS publication 502).
Examples of what is covered:
That can include the cost of a school or program if prescribed by a licensed health-care professional. It might even cover costs for a special two-year college certificate program for students with severe learning disabilities, such as the Reach program run by the University of Iowa, which costs as much as $40,000 a year.
The deduction also can be used for additional therapies. Regina Levy, a Los Angeles CPA with two special-needs children, offers a partial list: occupational therapy, music therapy, dance therapy, physical therapy, social-skills groups and “hippotherapy” (horseback riding), among others.
Travel to therapy, food and lodging at a specialized school, and even the cost of parents attending some conferences may be deductible.
Costs for college students are included.
Joseph Nagy, a CPA in Port Jefferson, N.Y., says he helped one family with a college-age son with severe attention deficit disorder maximize their deductions for 2008. The student couldn’t live in a dorm, so the family bought a small house near the school.
The Internal Revenue Service allowed a $5,000 medical deduction to alter the house to his needs, and another $9,000 deduction equal to what room and board would have been, on the grounds that living off-campus was a medical necessity, Mr. Nagy says. (His tuition wasn’t deductible as a medical expense because it wasn’t a specialized program, though the family did take an education tax credit.)
IRS Publication 502 (Medical and Dental Expenses) gives details, and a tax advisor should be consulted for complicated cases. Keep in mind that medical expenses are deductible only if they exceed 7.5% of AGI or 10% if taxpayers qualify for the Alternative Minimum Tax (AMT). [UPDATED]