Paul, age 62, suffers from emphysema and severe allergies and, upon the recommen
ID: 2496679 • Letter: P
Question
Paul, age 62, suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul incurs and pays the following amounts during 2015:
In addition, Paul pays $750 for prescribed medicines.
The system has an estimated useful life of 20 years. The appraisal was to determine the value of Paul’s residence with and without the system. The appraisal states that his residence was worth $350,000 before the system was installed and $356,000 after the installation. Paul's AGI for the year was $50,000.
What is the total of Paul's qualifying medical expenses for 2015?
$
What is his medical expense deduction for 2015?
$
Explanation / Answer
Deduction of the medical expenses in 2014 is dependent upon Schedule A of INR 1040, which says that medical expenses are allowed if it exceeds the 10% of the AGI. For example if the AGI is $ 100,000 and medical expenses are $12,000 then only $ 2,000 will be deducted.
Therefore, in this question we need to determine eligible medical expenses. Following table will provide the details of eligible medical expenses:
Particulars
Amount
Dust elimination system
$ 10,000
Doctor and Hospital bills
$ 2,500
Increase in utility bills due to system
$ 450
Paid for perscribed medicines
$ 750
Total medical expenses (A)
$ 13,700
Less: Gain on property after installation of system (B)
$ 6,000
Net eligible medical expenses (A-B)
$ 7,700
Note: Cost of appraisal is not considered here because it is not related to Paul's illness.
Now,
10% of AGI = $ 50,000 * 10%
= $ 5,000
Total medical expenses allowed = Net eligible medical expenses - 10% of AGI
= $ 7,700 - $ 5,000
= $ 2,700
Medical deduction allowed in 2014 = $ 2,700
Particulars
Amount
Dust elimination system
$ 10,000
Doctor and Hospital bills
$ 2,500
Increase in utility bills due to system
$ 450
Paid for perscribed medicines
$ 750
Total medical expenses (A)
$ 13,700
Less: Gain on property after installation of system (B)
$ 6,000
Net eligible medical expenses (A-B)
$ 7,700