Question

6.1.4. Al Daly's adjusted gross income for the year ended December 31, Year 1, was $20,000. He was not covered by any medical insurance plan. During Year 1, he paid $500 to a physician for treatment of a heart condition. He also owed the physician $900 for an operation performed in December Year 1, which he paid in January Year 2. In addition, Daly incurred a $1,700 hospital bill in Year 1, which he charged to his bank credit card in December Year 1, and paid to the bank in January Year 2. Daly's total allowable medical deduction for Year 1 is A. $0 B. $700 C. $1,200 D. $2,200

Answer 1

The correct answer is B - $700.

The deduction for medical expense is allowed, for the expenses paid during the year if expenses were more than 7.5% of AGI for year 2018. Expenses incurred but not yet paid is not allowed to be deducted. But if paid by credit card, that expense is eligible for deduction.

In the given case,

AGI = $20,000

7.5% 0f $20,000 = $1,500

Expenses allowable = $700+$1,500 = $2,200

Deduction allowed = $2,200 - $1,500 = $700