A review of the 2016 tax file of Gregory, a single taxpayer who is age 40, provides the following information regarding Gregory's 2016 tax status: $$\begin{array} { | l | r | }
\hline \text { Adjusted gross income } & \$ 40,000 \
\hline \text { Medical expenses (before percentage limit) } & 5,000 \
\hline \text { Itemized deductions other than medical } & 5,500 \
\hline 2016 \text { potential standard deduction } & 6,300 \
\hline
\end{array}$$ In 2017, Gregory receives a reimbursement for last year's medical expenses of $1,200. As a result, Gregory must
A) include $200 in gross income for 2017.
B) include $1,200 in gross income for 2017.
C) reduce 2017's medical expenses by $1,200.
D) amend the 2016 return.

Question

A review of the 2016 tax file of Gregory, a single taxpayer who is age 40, provides the following information regarding Gregory's 2016 tax status: $$\begin{array} { | l | r | } 
\hline \text { Adjusted gross income } & \$ 40,000 \
\hline \text { Medical expenses (before percentage limit) } & 5,000 \
\hline \text { Itemized deductions other than medical } & 5,500 \
\hline 2016 \text { potential standard deduction } & 6,300 \
\hline
\end{array}$$ In 2017, Gregory receives a reimbursement for last year's medical expenses of $1,200. As a result, Gregory must
A) include $200 in gross income for 2017.
B) include $1,200 in gross income for 2017.
C) reduce 2017's medical expenses by $1,200.
D) amend the 2016 return.

Quizplus · Accepted Answer

Gregory initially deducted $5,000 in medical expenses, but only the amount exceeding 10% of his AGI ($4,000) was deductible. Thus, $1,000 was deducted. The reimbursement of $1,200 exceeds the deducted amount by $200, which must be included in 2017's gross income.

A Review of the 2016 Tax File of Gregory, a Single