23. Andy had AGI of $80,000 for 2011. He was injured in a rock-climbing accident

Question

23. Andy had AGI of $80,000 for 2011. He was injured in a rock-climbing accident and paid $5,200 for hospital expenses and $2,800 for doctor bills. Andy also incurred medical expenses of $2,400 for his child, Jodi, who lives with his former wife, Pearl, and is claimed as a dependant by her. In 2012, Andy was reimbursed $2,600 by his insurance company for the medical expenses attributable to the rock-climbing accident.
a. Compute Andy’s deduction for medical expenses in 2011.
b. Assume that Andy would have elected to itemize his deductions even if he had no included in gross income on 2012?
c. Assume that Andy’s other itemized deductions in 2011 were $5300 and that he filed as a head of household. How much of the $2600 reimbursement must he include in gross income in 2012?

Explanation / Answer

Andy had AGI of $80,000 for 2010. He was injured in a rock-climbing accident and paid $5,200 for hospital expenses and $2,800 for doctor bills. Andy also incurred medical expenses of $2,400 for his child. Jodi, who lives with his former wife, Pearl, and is claimed as a dependent by her. In 2012, Andy was reimbursed $2,600 by his insurance company for the medical expenses attributable to the rock-climbing accident.
a. Compute Andy’s deduction for medical expenses in 2010.

5200 + 2800 + 2400 = 10,400 (a child of divorced parents is treated as a dependent of both parents for medical expense deduction)

7.5% of AGI = 6,000

Deduction = 10,400 – 6000 = $4,400

b. Assume that Andy would have elected to itemize his deductions even if he had no medical expenses in 2010. How much, if any, of the $2,600 reimbursement must be included in gross income in 2012?

If he would have itemized without the medical expenses, then his other itemized deductions must have been more than the standard deduction, and so the whole reimbursement of $2,600 would be included in gross income in 2012.

c. Assume that Andy’s other itemized deductions in 2011 were $5,300 and that he filed as a head of household. How much of the $2,600 reimbursement must he include in gross income in 2012?

Head of household deduction for 2010 was 8,400. Itemized deductions: 5,300 + 4,400 = 9,700. Difference between itemized deductions and head of household deduction: 9,700 – 8,400 = 1,300.

He would only have to include $1,300 of the reimbursement in income in 2012.

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