Can Schedule A medical expenses offset long term capital gains?

Question

My elderly parents have recently started incurring very significant expenses for in-home care. They are considering selling a vacation home with a long-term capital gain to cover their caregiving expenses. The caregiving costs would go on Schedule A as medical expenses. Can Schedule A deductions offset long-term capital gains?

It is possible that in 2024 they will have Schedule A medical expenses of around $300,000 (virtually all of which will exceed the 7.5% of AGI threshold) as well as $150,000 in long-term capital gains from the sale of the vacation home. Would the Schedule A deductions eliminate the tax due on the capital gain?

Answer 1

Schedule A deductions offset the total taxable income, including capital gains. However long term capital gains are taxed at preferential rates, so using Schedule A deduction to offset them is resulting in less tax savings than using the deduction to offset ordinary income/dividends/IRA distributions/SSA income etc.

That said it may not really be a choice. If neither the timing nor the source of funds are negotiable then it is what it is. The deduction will eliminate the tax on the capital gains, and they will probably have a deduction left to carry forward to future years (what is called "NOL" - Net Operating Loss, when the total taxable income is negative).