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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29793
Experience:  Taxes, Immigration, Labor Relations
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My son has one very large medical bill ($30,000) that was submitted

Resolved Question:

My son has one very large medical bill ($30,000) that was submitted to the insurance company, but coverage was denied. He plans to resubmit, but the outcome is unknown. If the claim comes through, it will probably be about 40% of the bill, ie, $12,000.

My question is how is the medical expense handled for his 2011 tax return. What happends, if his claim is approved in 2012?
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

LEV :

Hi and welcome to Just Answer!
You may deduct medical expenses on your 2011 tax return if these expenses were actually paid in 2011.

LEV :

If later your son will be reimbursed for all or part of expenses which previously were used for deduction - he will include into his taxable income that amount. For instance if the insurance company will pay part of that bill in 2012 - that amount will be included into 2012 taxable income.

LEV :

See for reference IRS publication 525 - www.irs.gov/pub/irs-pdf/p525.pdf
A recovery is a return of an amount you deducted or took a credit for in an earlier year. The most common recoveries are refunds, reimbursements, and rebates of itemized deductions.
Tax benefit rule. You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year.
Let me know if you need any help.

Customer:

Suppose he get's the claim approved prior to his filing his 2011 return, could he then reduce his medical expense by the amount received in 2012?

LEV :

The issue is not when the claim is approved - but when the medical bill is paid and when reimbursement is received.
If your son paid medical expenses in 2011 and deduct that amount on 2011 tax return - but will receive partial reimbursement from the insurance company in 2012 - he will include that amount into his taxable income on 2012 tax return.
Not reducing medical expenses - but including into taxable income as a recovery.

Customer:

Let me restate the above.

LEV :

sure - go ahead

Customer:

Let me restate the above question. Suppose he get's the claim approved and receives the money prior to him submitting his 2011 return. Does he have the option of reducing the 2011 medical expense with the claim money received in 2012 on his 2011 tax return.

LEV :

If he receive or expect to receive reimbursement from the insurance company - he should not claim a deduction for that expense.
If case such expenses were deducted - he may amend 2011 tax return and reduce deduction - however - if he will pay back taxes after due date of the return - there will be additional penalties and interest charges.
If he woudl not claim teh deduction and will not receive reimbursement from the insurance company - he may also amend 2011 tax return and add such deduction.

Customer:

Ok, I get the idea. I also was able to find the information in Turbo Tax under miscellanous income. It seems as if this would be very common situation due to medical expenses near the end of the year.

Customer:

Thanks, XXXXX XXXXX your answer.

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