Question

4. Paul and Libby White (both are age 66) are married and together have AGI of $105,000 in 2018. They have two dependents and file a joint return. During the year, they paid $8,000 for medical insurance, $15,000 in doctor bills and hospital expenses, and $1,000 for prescribed medicine and drugs.

(A) In December 2018, the Whites received an insurance reimbursement of $3,500 for hospitalization expenses. Determine the deduction allowable for medical expenses paid during the year.

(B) Assume instead that the Whites received the $3,500 insurance reimbursement in February 2019. Determine the deduction allowable for medical expenses incurred in 2018.

(C) Assume that the Whites received the $3,500 insurance reimbursement in February 2019. Discuss whether the reimbursement will be included in their gross income for 2019.

Answer 1

Paul And Libby white - Married Filing Jointly - Both 66 years of age

White can Claim Standard deduction of $24000+$1300(Since Age more than 65 years) = $25300

Where as Total Medical Expenses for itemize deuction = 24000-7.5/100*(105000)=$16125

Therefore it is beneficial to take standard deduction of $25300

A) If Whites take itemize deduction then Medical Reimbursement received will be reduced from the Current year deduction

Deduction Allowable for medical expenses = $16125-3500 = $12625

B) Since Reimbursemnet received in Feb 2019 will not be reduced in 2018 Deduction

Deduction Allowable for medical expenses = $16125

C) Taxable or $3500 in the year 2019 by including in Gross Income