Question

Arturo, a calendar year taxpayer, paid $26,900 in medical expenses and sustained a $32,280 casualty loss in 2020 (the loss occurred in a Federally declared disaster area). He expects $18,830 of the medical expenses and $22,596 of the casualty loss to be reimbursed by insurance companies in 2021. How much can Arturo include in determining his itemized deductions for 2020? Disregard %-of-AGI limitations or casualty loss floor in determining your answers.

Before considering any limitations (or reductions) on deductions, Arturo can include$____ of the medical expenses and____of the casualty loss when determining his itemized deductions in 2020.

Answer 1

Arturo can include $8,070 of medical expenses and $9,684 of the casualty loss in his itemized deductions for 2020, subtracting expected insurance reimbursements from his total expenses and losses.

Step-by-step explanation:

Before considering any limitations on deductions, Arturo can include $8,070 of the medical expenses and $9,684 of the casualty loss when determining his itemized deductions for 2020. This is calculated by subtracting the expected insurance reimbursements from the total expenses and losses incurred. Specifically, for medical expenses: $26,900 - $18,830 = $8,070, and for the casualty loss: $32,280 - $22,596 = $9,684.

An itemized deduction is an expense that can be subtracted from your adjusted gross income (AGI) to reduce your tax bill. Taxpayers can itemize deductions or claim the standard deduction that applies to their filing status. Itemized deductions must be listed on Schedule A of Form 1040 and may include mortgage interest, charitable gifts, and unreimbursed medical expenses.

Itemized deductions reduce your taxable income, and your savings depends on your tax bracket. Suppose an unmarried single filer with a gross income of $80,000 claims itemized deductions totaling $15,000. Subtracting those deductions from gross income yields a taxable income of $65,000, which falls within a 22% marginal tax rate bracket for 2023 and 2024.