If you’re spending a significant amount of money on CBD products, you may be wondering if CBD oil is tax-deductible. Based on our research, the short answer for U.S. residents is “maybe.” But only if you’re using hemp-derived CBD products that have been recommended by your doctor.
We discuss what we learned from our research below. We aren’t tax professionals so we highly recommend that you consult your tax advisor before taking the deduction on your tax return.
IRS Rules on the Deductibility of Medical Expenses
Per IRS Publication 502, qualifying medical expenses are claimed on Schedule A (Itemized Deductions) of Form 1040. You can only actually deduct the amount of qualifying medical expenses that is more than 7.5% of your adjusted gross income (AGI) for 2019. The threshold amount will increases to 10% of AGI for 2020.
This mean that if your 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 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 the deductibility of CBD oil. 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 Hemp-Derived CBD Expenses Tax-Deductible?
Hemp and hemp-derived CBD 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 products now 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 the cost of your CBD as a 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 Tax-Deductible in Canada?
If you have a medical marijuana prescription, the Canada Revenue Agency (CRA) allows you to claim a CBD 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.are