With the increasing commercial success of ancestry and health genetic tests, the question has arisen whether amounts paid to obtain information about one’s genetic health are deductible under the Internal Revenue Code (IRC). In August, the IRS answered that question in a Private Letter Ruling (PLR), stating that a portion of the health component of the genetic tests are medical expenses under IRC 213(d) and are thus eligible to be deducted as an itemized expense or paid for with a healthcare flexible spending account.
Genetic tests such as those sold by 23andme typically offer an ancestry component to the genetic test as well as a health component. While the ancestry component can identify where the user’s ancestors may have come from, the health component can provide information about genetic markers that show a potential higher risk of developing certain conditions such as Parkinson’s disease or diabetes, to name a couple examples.
The Internal Revenue Code states that “medical care” is defined as being “for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.” The PLR makes it clear that the genetic testing at the laboratory portion of the genetic test is considered medical care, but the cost of the report written by the testing company is not medical care. Therefore, the taxpayer must reasonably allocate the cost of the genetic test not only between the health component and the ancestry component, but within the health component between the amount paid for genetic testing at the laboratory and the amount paid for the reports that provide general information on a test result. Taking advantage of this ruling, 23andme promptly created an online calculator to help customers determine how much of their purchases were tax deductible.