Is a Financed Medical Expense a Tax Deduction?

Your trip to the doctor can still be deducted even if you finance the costs.

Doctor image by Monika 3 Steps Ahead from

Unexpected medical expenses can not only blow your budget, but also force you to take out loans to finance the costs. However, if your expenses are large enough and you itemize your deductions, you can write off at least a portion of your costs. Only the portion of your medical expenses that exceeds the specified percentage of your adjusted gross income for the year is deductible. To claim the deduction, you need to know what year to report your expenses.

Tax Treatment of Loans

When you take out a loan, you don't have any taxable income because the Internal Revenue Service recognizes that your net worth has not changed. For example, if you take out a $10,000 loan, your bank account increases by $10,000, but you now have a $10,000 liability, so your net worth is still the same. Therefore, paying your medical expenses with a loan or credit card payment is not the same as being reimbursed.

Loan Treated as Payment

When you take out a loan to finance your medical expenses, the IRS treats you as paying the medical expenses with the proceeds of the loan. Therefore, the medical expenses are deductible in the year that you use the loan proceeds to pay for the expenses. For example, if you take out a $5,000 loan in December 2014 and you pay it off in 2015 and 2016, you take the deduction on your 2014 tax return. If, however, you take out a loan in 2014 but don't pay the hospital bill until 2015, take the tax deduction on your 2015 return.

Credit Card Payments

If you finance your medical expenses with a credit card, you must claim the expenses in the year the charge is made, regardless of when you actually make the payments on the card. For example, assume you swipe your credit card to pay for your medical expenses on December 30, 2013, you get the credit card bill in January 2014, and you pay it off between 2014 and 2016. According to IRS Publication 502, you would claim the entire deduction on your 2013 tax return because that is the year in which you made the payment, even though you didn't pay off the credit card until future years.

Only Qualifying Expenses

When you take out a loan, you can only deduct the portion used to pay for qualifying medical expenses. Qualifying expenses include the cost of preventative care, diagnosis, treatment and prescription medications. For example, if you take out a $7,000 loan and use $6,000 for your surgery and related qualifying expenses and $1,000 for non-qualifying expenses, you can deduct only the $6,000 used on the qualifying expenses. In addition, you cannot deduct interest on the loan as a medical expense in future years.

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About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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