Question

Isabella, age 50, pays 500 each month for health insurance premiums with after-tax dollars. She is not self-employed. During 2018, she also incurred 200 in doctor bills and 50 in over-the-counter medications. Her AGI is 45,000. What amount will she be able to deduct as an itemized deduction after the AGI floor is applied?

1) 3,200
2) 6,200
3) 2,825
4) 0

Answer 1

Isabella can deduct $2,875 as her itemized deduction for medical expenses, which is the amount of her total medical expenses ($6,250) minus 7.5% of her AGI ($3,375).

Step-by-step explanation:

The question is about calculating the itemized deduction for medical expenses on Isabella's tax return. In the tax year 2018, taxpayers could deduct the portion of medical expenses that exceeded 7.5% of their adjusted gross income (AGI). Isabella's AGI is $45,000, and her total medical expenses are the sum of her health insurance premiums ($500 per month for 12 months) plus her doctor bills and over-the-counter medications, which is $6,000 + $200 + $50 = $6,250.

7.5% of Isabella's AGI is $45,000 * 0.075 = $3,375. Since her medical expenses ($6,250) exceed this amount, she can deduct the difference on her tax return. Therefore, Isabella's medical expense deduction is $6,250 - $3,375 = $2,875.