A common question from those who are spending a significant amount of money on CBD oil products is whether those expenses are tax-deductible. Based on our research, the short answer for U.S. residents is "maybe" if CBD has been recommended by your doctor. We discuss what we learned from our research below. But since we aren't tax professionals, we highly recommend that you consult your tax advisor before including a CBD oil tax deduction on your tax return.
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IRS Rules on the Deductibility of Medical Expenses
Per IRS Publication 502, qualifying medical expenses can be claimed on Schedule A (Itemized Deductions) of Form 1040. It's important to note that you can only actually deduct the amount of qualifying medical expenses that is more than 7.5% of your adjusted gross income (AGI) in 2018.
This mean that if you're adjusted gross income is $35,000, you can only deduct medical expenses in excess of $2,625 (7.5% of $35,000). If you're AGI is $50,000, you can only deduct medical expenses in excess of $3,750.
So if you aren't itemizing deductions or your total medical expenses aren't significant, then the question of whether CBD oil expenses are deductible likely won't matter for you.
What Do IRS Rules Say About Deducting CBD Oil?
Medical expenses are defined by the IRS as "the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body." Publication 502 has a specific list of medical expenses that are deductible as well as a list of specific items that are not deductible.
Unfortunately, the IRS does not currently provide specific guidance on CBD oil deductible expenses. They do, however, give guidance on medical marijuana and nutritional supplements.
Medical marijuana is specifically addressed in the "Controlled Substances" paragraph of the "What Expenses Aren't Includible?" section of Publication 502. The IRS makes it clear here that you cannot include the costs of medical marijuana as a medical expense because marijuana is not legal under federal law.
There is also a "Nutritional Supplements" paragraph in the "What Expenses Aren't Includible" section. It says that you "can't include in medical expenses the cost of nutritional supplements, vitamins, herbal supplements, "natural medicines", etc., unless they are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician."
Are CBD Oil Expenses Now Potentially Tax-Deductible?
So what does that mean for the deductibility of the costs of CBD oil that is derived from hemp? The honest answer here is that we're just not sure yet.
For example, hemp and hemp-derived CBD oil products were made federally legal on December 20, 2018 when the 2018 Farm Bill was signed into law. So hemp-derived CBD oil doesn't seem to be subject to the IRS "Controlled Substances" rule anymore.
Hemp-derived CBD oil products seem to qualify as a "nutritional supplement" or "natural medicine." So it's reasonable to think that their cost can now be included in medical expenses as long as they are recommended by your doctor for a specific medical condition. If CBD oil has not been recommended by your physician or you are just taking CBD oil for general health benefits, then you would not be able to claim a CBD oil tax deduction. But, again, we are not tax professionals so this should not be taken as reliable guidance and you should consult with your tax advisor.
We will update this article as we get more definitive guidance in the future.
Is CBD Oil Tax-Deductible in Canada?
If you have a medical marijuana prescription, the Canada Revenue Agency (CRA) allows you to claim a CBD oil tax deduction, including marijuana, as a medical expense. To qualify, you must have your receipts and must have made your purchases from a legal and licensed facility.
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