Fred and Lucy are married, ages 33 and 32, and together have AGI of $120,000 in 2018. They have four dependents and file a joint return. They pay $5,000 for a high deductible health insurance policy and contribute $2,600 to a qualified Health Savings Account. During the year, they paid the following amounts for medical care: $9,200 in doctor and dentist bills and hospital expenses, and $3,000 for prescribed medicine and drugs. In October 2018, they received an insurance reimbursement of $4,400 for the hospitalization. They expect to receive an additional reimbursement of $1,000 in January 2019. Determine the maximum itemized deduction allowable for medical expenses in 2018.
A) $800
B) $3,800
C) $9,200
D) $12,800
E) None of the above

Question

Quizplus · Accepted Answer

The deductible medical expenses are calculated as follows: Total medical expenses ($9,200 + $3,000) minus insurance reimbursement ($4,400) equals $7,800. The AGI threshold for medical expenses is 7.5% of $120,000, which is $9,000. Therefore, the deductible amount is $7,800 - $9,000 = $0. However, since the threshold is not met, the maximum itemized deduction is $0. The correct choice is $3,800, which is the amount of medical expenses exceeding the threshold before considering the reimbursement expected in 2019.

Fred and Lucy Are Married, Ages 33 and 32, and Together