Thinking about the fact that the refund was paid to our client's estate after she had passed away, not her personal - would that change your answer? Especially when the estate never rec'd any tax benefit from the prepayment of the nursing home expenses!Thank you,Alan
State/Country relating to question: Montana
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I am not positive on this. I will have to opt out and let another expert answer this question. I know you are technically not to deduct prepaid medical expenses that are for future services. "Payments for care to be provided substantially beyond the end of the year are not deductible as medical expenses, except for lifetime care advance payments and payments for long term care insurance". I believe this would fall under income in respect to a descedent being what it is but I think a second opinion would be appropriate.
I agree fully with Stephanie B's logic, as presented in the following thread (your previous question)THREADThe Estate Tax is just wrapping up what happened when she was alive. The estate will have income to the extent that they took a deduction for the payment.
The estate did not take any deduction for the nursing home expenses - they were paid by the personal and deducted there in the previous taxyear.Alan
Yes, but the Taxpayer benefited from the deduction, so now it's time to pretend that the deduction didn't occur So, if you were to have the deduction AND the refund tax free, essentially you are getting a benefit twice. The Tax Code doesn't work that way.
I don't like the idea of reporting the refund at estate tax rates - is there anyway to pick it up on her final 1040 instead - that is if we have to pay tax on it? The other option that I have been thinking about is to go back and amend 2010 and take the prepayment out - since the tax was mostly long term capital gains?Alan
Option #2 seems feasible. This is the route I would go, but I don't know what roadblocks you will come on to with her being deceased and you amending the return. There's no way to flow the cash through to a 1040, because they money should have been refunded to whoever paid it (your client). Since she's passed, it's now up to her estate.
Graduate Accounting Degree from Ole Miss