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Medical Expense Deduction and State Income Tax Deduction

Question 1:

Medical Expense Deduction and Reimbursement (LO. 2)

Hunter and Cynthia are married and together have AGI of $100,000 in 2012. They have three dependents and file a joint return. They pay $3,000 for a high-deductible health insurance policy and contribute $2,400 to a qualified Health Savings Account. During the year, they paid the following amounts for medical care: $6,900 in physician and dentist bills and hospital expenses and $2,300 for prescribed medicine and drugs. In November 2012, they received an insurance reimbursement of $2,500 for the physician and hospital expenses. They expect to receive an additional reimbursement of $1,500 in January 2013.

What amount (if any) is deductible for AGI?

The maximum deduction from AGI as an itemized deduction for medical expenses in 2012 is ____$ .

Question 2

State Income Tax Deduction and Refund (LO. 4)

Norma, who uses the cash method of accounting, lives in a state that imposes an income tax. In April 2012, she files her state income tax return for 2011 and pays an additional $1,000 in state income taxes. During 2012, her withholdings for state income tax purposes amount to $7,400, and she pays estimated state income tax of $700. In April 2013, she files her state income tax return for 2012, claiming a refund of $1,800. Norma receives the refund in August 2013.
If an amount is zero, enter "0".

a. Assuming that Norma itemized deductions in 2012, how much may she claim as a deduction for state income taxes on her Federal return for calendar year 2012 (filed April 2013)?

B. Assuming that Norma itemized deductions in 2012, how will the refund of $1,800 that she received in 2013 be treated for Federal income tax purposes?

Norma will have income or a loss of $____

C. Assume that Norma itemized deductions in 2012 and that she elects to have the $1,800 refund applied toward her 2013 state income tax liability. How will the $1,800 be treated for Federal income tax purposes?

Norma will have an income or a loss of $____.

d. Assuming that Norma did not itemize deductions in 2012, how will the refund of $1,800 received in 2013 be treated for Federal income tax purposes?

the amount of $____ will be included as income or a loss in 2013.

Solution Summary

This solution illustrates which expenses are allowable as medical expense and state income tax deductions and the effect of those transactions on adjusted gross income.

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