A majority of Americans can use medical marijuana legally, but they can’t claim a medical marijuana tax deduction on their federal income taxes. That’s the final word from the IRS after a few days of confusion and mixed messages in February, two months before the tax deadline.
The question on medical marijuana tax deductions started when Internal Revenue Service (IRS) National Taxpayer Advocate Erin Collins made an appearance on C-SPAN’s Washington Journal show. A viewer who called into the show from Nevada said he couldn’t find an option to deduct cannabis purchases on the TurboTax website.
Collins told him that “if it is a medical expense, and then you have an option on your Schedule A, you could potentially put it there.”
That could add up to some hefty deductions for many people. Unfortunately, Collins quickly corrected what she had said soon after her appearance, setting the record straight on medical marijuana tax deductions. That is to say, there aren’t any. This also applies to CBD products.
Another Quirk of Weed’s Illegal Status at Federal Level
While marijuana is legal for both medical and recreational use, it remains an illegal Schedule I drug at the federal level. As a Schedule I drug, it’s considered on par with heroin and cocaine in the eyes of the U.S. government.
That creates all types of complications and confusion. For example, it turns otherwise law-abiding citizens into potential criminals when they buy cannabis in one state and transport it back to their home in another. It also makes it difficult for cannabis businesses to get basic financial services from banks. And it also can create confusion for those who feel that since cannabis is legal in their state, they should get to claim medical marijuana tax deductions.
Collin is doing her best to clear up any confusion she may have created. In a statement to Marijuana Moment, Collins said, “I had not previously studied the federal tax treatment of marijuana, and I speculated that marijuana might ‘potentially’ be deductible as a medical expense in certain circumstances.”
She added, “After the program, I checked the law. To clarify, medical marijuana is not tax deductible for federal purposes under current rules.”
Taxpayers Also Face Issues on State Income Taxes
As of now, there’s no avenue for a person to claim a medical marijuana tax deduction on their federal taxes. In purely technical terms, the federal government still views using marijuana for any purpose as a crime. There’s no way to get a tax benefit from it.
At the state level, it’s likely you’ll run into similar issues. In New Jersey, for example, medical (and recreational) marijuana is legal, However, the state allows people to only deduct medical expenses for medicine that is allowed at the federal level. So, it’s the same roadblock.
Interestingly, while it won’t allow medical marijuana deductions for individuals, the federal government does require every cannabis business to report its income so it can get taxed. They do, however, allow cannabis businesses to deduct the cost of goods from its income.