In 2014, Barb, a cash basis taxpayer, was in an accident and incurred $8,000 in
ID: 2425911 • Letter: I
Question
In 2014, Barb, a cash basis taxpayer, was in an accident and incurred $8,000 in medical expenses, which she claimed as an itemized deduction for medical expenses. Because of the 10%-of-AGI reduction, the expense reduced her taxable income by only $3,000. In 2015, Barb successfully sued the person who caused the physical injury and collected $8,000 to reimburse her for the cost of her medical expenses. Barb was in the 15% marginal tax bracket in both 2014 and 2015. What amount, if any, will Barb include in her 2015 gross income?
Explanation / Answer
Barb will include $3,000 in her gross income of 2015.
She receives the reimbursement in 2015 and deducted it in 2014, she must include thereimbursement in gross income to the extent she received a tax benefit from the medical expense deduction in 2015.
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