Limited Purpose FSA - List of Eligible & Ineligible Expenses

Capital expenses

Expenses for special equipment or improvements to a home are reimbursable if the primary purpose is medical care. LMN required as well as an appraisal before and after the expense is incurred. Cost of appraisal is not reimbursable and online appraisals are not sufficient (Zillow) as the actual capital expense must be considered in the appraisal.

Improvements or special equipment installed in the home may qualify for reimbursement if their main purpose is medical care. A LMN is required. The amount reimbursable is reduced by any increase in the value of the property. If the value of the property is not increased by the improvement, the entire cost of the improvement may be reimbursable. If the improvement or modification does not increase the value of the residence then the full cost may be reimbursable. These improvements include, but are not limited to:
◾Constructing entrance or exit ramps
◾Widening doorways at entrances or exits
◾Widening or otherwise modifying hallways and interior doorways
◾Installing railing, support bars or other modifications to bathrooms
◾Lowering or making other modifications to kitchen cabinets and equipment
◾Moving or otherwise modifying electrical outlets and fixtures
◾Installing porch lifts and other forms of lifts (but generally not elevators)
◾Modifying fire alarms, smoke detectors and other warning systems; modifying stairways
◾Adding handrails or grab bars
◾Modifying hardware on doors
◾Modifying areas in front entrance and exit doorways
◾Re-grading the ground to provide access to the residence

Only reasonable costs are considered medical care. Additional costs for personal motives, such as for architectural or aesthetic reasons, are not reimbursable.

Capital Expense Worksheet

The following worksheet may be used to determine the amount of a reimbursable capital expense.
1.The cost of the improvement $__________ .
2.The increase in the value of the home as a result of the improvement $__________ .
If line 2 is equal to or greater than line 1, the cost of the improvement is not reimbursable. If line 2 is less than line 1, go on to line 3.
3.Subtract line 2 from line 1. This amount may be claimed as a medical expense.

Although a capital expense may be reimbursable under Section 213, it is not certain to what extent such an expense may be reimbursable under a health FSA. Rules prohibit as a benefit “deferred compensation.” For this purpose, deferred compensation means the use of contributions “from one year to purchase a benefit that will be provided in a subsequent year.” Since a capital expenditure by its nature has value over more than one year, reimbursement of such an expense might be considered deferred compensation. The IRS has not provided specific guidance on this point.

Accordingly, the expense may be reimbursed in one of the three following ways: (1) not reimburse the expenditure at all (most conservative); (2) prorate the reimbursement over the useable life of the asset (a middle-ground approach); and (3) reimburse the entire expenditure in the year in which it is acquired (most aggressive).

Operation and Maintenance

If a capital expense qualifies as a reimbursable medical expense, then expenses related to operation and maintenance also qualify as medical expenses, as long as the medical reason for the capital expense still exists. This is so even if none or only part of the original capital expense qualified as a medical care expense.

Improvements to Property Rented By a Person with Disabilities

Improvements to rental property to treat a medical condition are reimbursable if the amount was not reimbursed by the landlord or any other source.

Chair

The cost difference between a special chair and a normal chair is reimbursable. The chair must be primarily for medical care. Expense requires documentation indicating the cost of three comparable items in order to determine the cost difference. LMN required.

Christian Science practitioner

Expenses for a Christian Science Practitioner are reimbursable if used to treat a medical condition.