Kathy is a single taxpayer. She had the following unreimbursed medical expenses for 2020:   $5,000 of medical expenses related to an auto accident. She expects the other driver's auto insurance to reimburse her $3,000 of the expenses in early 2021. $1,000 prepayment to an orthodontist

SWFT Comprehensive Volume 2019
42nd Edition
ISBN:9780357233306
Author:Maloney
Publisher:Maloney
Chapter10: Deductions And Losses: Certain Itemized Deductions
Section: Chapter Questions
Problem 26P
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Kathy is a single taxpayer. She had the following unreimbursed medical expenses for 2020:

 

  • $5,000 of medical expenses related to an auto accident. She expects the other driver's auto insurance to reimburse her $3,000 of the expenses in early 2021.
  • $1,000 prepayment to an orthodontist for braces she will receive in early 2021. The orthodontist has a strict policy that a prepayment is required before braces are given to a patient.
  • $600 of her portion of health insurance premiums not covered by her employer.
  • Due to being permanently handicapped after the accident, she had to install a wheelchair ramp and support bars in her home. Total costs were $4,000. The value of her home increased $2,000, and the improvements have a useful life of 15 years.

Assuming she itemizes and her AGI was $40,000, what is her medical expense deduction for 2020?

Assuming she does not itemize in 2021 and, as expected, received the reimbursement of $3,000 for the other driver's insurance company, how much AGI will she recognize in 2021 from the reimbursement?

  • $4,600 deduction for 2020; $3,000 increase in AGI for 2021
  • $7,600 deduction for 2020; $3,000 increase in AGI for 2021
  • $1,600 deduction for 2020; $0 increase in AGI for 2021
  • $2,600 deduction for 2020; $0 increase in AGI for 2021
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