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 appealed. 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 difference. 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.