Medical Expense Deduction. In 2015, Charla, a single taxpayer with no dependents

ID: 2460597 • Letter: M

Question

Medical Expense Deduction. In 2015, Charla, a single taxpayer with no dependents, was severely hurt in a farm accident. Charla is 38 years old. The accident left Charla's legs 85% paralyzed. After incurring $14000 of medical expenses at the hospital, the doctor recommended that Charla install a pool at her home for therapy. The pool cost $25000 to install and increased the value of her home by $22000. She spent $930 maintaining the pool in 2015 and $1060 in 2016. Charla also purchased a wheelchair on December 28, 2015, for $2300, which she charged to her credit card. She paid her credit card bill on January 6, 2016. She also purchased a hospital bed for $3800 but did not pay for the bed until 2016. Charla paid her physical therapist $4000 for services performed in 2016. Charla paid $1200 in medical insurance premiums on an after-tax basis in both 2015 and 2016. In 2016, the insurance company reimbursed Charla $9000 for her hospital stay in 2015. Her AGI for 2015 and 2016 is $38000 and $43000, respectively, not considering any of the above items. Charla has no other itemized deductions in either year. (a) What is Charla's taxable income for 2015? (b) What is Charla's medical expense deduction for 2016? How does she treat the reimbursement?

Explanation / Answer

Adjusted Gross Income

$ 38,000.00

Less: Deductions

Medical expenses

-$ 14,000.00

Pool

-$ 3,000.00

Pool maintenance

-$ 930.00

Wheelchair

-$ 2,300.00

Medical Insurance premiums

-$ 1,200.00

Total medical expenses

-$ 21,430.00

10% of AGI

$ 3,800.00

Personal exemption

-$ 3,900.00

Taxable income

$ 16,470.00

Charla’s medical expense deduction for 2014 is $5,760 ($10,060 - $4,300).