If you’ve been putting off any kind of elective surgery and you’re 65 or older, this might be your year to do it. Why? Because this is the last year in which you only have to reach 7.5% of your adjusted gross income (AGI) before you can start deducting medical expenses. If you wait until 2017, you’ll have to amass significantly more medical costs before they have any effect on your taxes. (If you're married and file jointly, only one partner in the couple needs to be 65 or more for the family to qualify for the 7.5% deduction – and either partner can incur the expenses.)

The Affordable Care Act

You also know it as Obamacare, but whatever you call it, the Affordable Care Act (ACA) is the reason for the change. Prior to the 2013 tax year you could claim a deduction for any medical expenses incurred by you, your spouse or your dependents providing that the total was higher than 7.5% of your adjusted gross income, regardless of your age.

Your AGI is the amount you made minus any deductions you took. If your AGI was $50,000, once you reached $3,750 you could deduct any expenses above that threshold. The ACA raised that figure to 10%, but gave seniors a tax break for the first few years.

Is it worth the hassle? You bet it is. If you make $50,000 in this tax year and have $4,500 in medical expenses, that could mean either a reduction of $187.50 in what you owe or an increase of the same amount in your refund, assuming a 25% tax bracket. Of course, there are all kinds of variables that could affect that number.

Age Matters

This 7.5% rule doesn’t apply to everybody. You have to be 65 years of age or older (or be married to someone that age and filing jointly) to claim the deduction at the 7.5% rate. Everybody under 65 has to reach a 10% threshold; for example, that would be $5,000 for those with an AGI of $50,000.

The reason for seniors to rush: In 2017 that 7.5% rate for those 65 or older will be gone. They will have to pay out 10% of their AGI just like everybody else before they qualify for any tax deductions.

The Strategy

Let’s say that there’s something you’ve been putting off. Maybe you need rotator cuff surgery, and you meet the age requirements. Per Blue Cross Blue Shield the hospital costs can be up to $15,000. Choosing to have your elective surgery in 2016 rather than 2017 will save you money. As an example, let’s peg the surgery cost at $11,000.

If you know you’re having the surgery this year, keep your AGI as low as possible to maximize your deduction. You could contribute more to your retirement plans, give more to charity (for more, see Donations: How to Maximize Your Tax Deduction), go back to school or even get rid of some business income by paying your children for legitimate work they’ve done for your company.

However, don’t create expenses to lower your AGI. That won’t equal a savings once everything is done. Also, you can’t count any medical expenses paid for with money from a health savings account or a flexible spending account because they are already tax advantaged, and the IRS won’t let you double dip.

If you make $50,000 this year and have that rotator cuff surgery, you could potentially see $1,812.50 coming back to you, through either a reduction in your tax bill or an increase in your refund. If you wait until 2017 that number drops to $1,500 – a significant difference.

The Bottom Line

As with all things taxes, circumstances can get complicated. Not all medical expenses are deductible, and you could have other tax situations that affect how the numbers work out for you. What isn’t complicated is the fact that this rule changes in 2017.

The IRS has an online tool that could help you figure out if your medical expenses are deductible. Now is the time for that elective surgery if you’re planning to get it done anyway. (For more, see 20 Medical Expenses You Didn’t Know You Could Deduct.)

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