Raymon Gerard v. Commissioner
37 T.C. 826 (Tax Ct. 1962)
Gerard's daughter had cystic
fibrosis, which meant it was dangerous for her to be exposed to dry, dusty
air. On the recommendation of her doctor, Gerard installed an
air-conditioning system costing $1300 to make his daughter feel better.
When he filed his taxes,
Gerard deducted the $1300. The IRS denied the deduction. Gerard
Gerard argued that the $1300
was deductible under 26 U.S.C. §213,
which allows for deductions for expenses related to medical care.
The IRS argued that this
wasn't a medical expense, it was an improvement to Gerard's house, and
that's a non-deductible capital expenditure.
The air conditioner would
be functional far longer than one year, and it made Gerard's house worth
more, so it is a classic example of a capital expenditure.
The Tax Court split the
The Tax Court found that the
air conditioner was an expenditure for medical care, and so was covered
within the scope of §213.
However, the Court also
found that 26 U.S.C. §263(a)(1)
does not allow deductions for any amount paid for permanent improvements
or betterments made to increase the value of any property.
In this case, the Court
found that the air conditioner increased the value of Gerard's property
by $800. Therefore, Gerard was only allowed to deduct $1300-$800 = $500.
Btw, in the rare case that an
expense causes the property value to decrease, the property owner is not allowed to deduct
that loss as a medical expense.
So if for some medical
reason Gerard had to paint his house an ugly color, and that lowered the
value by $1000. The most he could still have deducted was $1300, even
though he technically lost $1300+$1000=$2300.