Question

Paul, suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul incurs and pays the following amounts during 2021: Doctor and hospital bills $4,500 Dust elimination system 10,000 Increase in utility bills due to the system 450 Cost of certified appraisal 300 In addition, Paul pays $750 for prescribed medicines. The system has an estimated useful life of 20 years. The appraisal was to determine the value of Paul's residence with and without the system. The appraisal states that his residence was worth $350,000 before the system was installed and $356,000 after the installation. Paul's AGI for the year was $50,000. a. What is the total of Paul's qualifying medical expenses for 2021? х b. What is his medical expense deduction for 2021?

Answer 1

The total qualifying medical expenses for Paul in 2021 amount to $9,700. After applying the 7.5% AGI threshold to his $50,000 income ($3,750), his deductible medical expense is $5,950.

Step-by-step explanation:

To calculate Paul's qualifying medical expenses for 2021, we must consider only the amounts that are considered medically necessary and not reimbursed by insurance or other sources. The doctor and hospital bills of $4,500 and prescribed medicines of $750 are clearly qualifying medical expenses. Regarding the dust elimination system, the increase in utility bills due to the system of $450 is a qualifying expense. The cost of the dust elimination system is more complex. According to the IRS, capital expenses for equipment installed in the home can be partially included as a medical expense to the extent that their cost exceeds the increase in the home's value. Therefore, the applicable portion of the dust elimination system is the cost minus the increase in home value ($10,000 - $6,000 = $4,000). The cost of the certified appraisal is not a medical expense.

Summing up the qualifying expenses, we have $4,500 (doctor and hospital) + $750 (medicines) + $450 (increased utility bills) + $4,000 (portion of the system's cost) for a total of $9,700. However, according to IRS regulations, only the amount of medical expenses that exceeds 7.5% of the adjusted gross income (AGI) can be deducted. Paul's AGI is $50,000, so 7.5% of that is $3,750. Subtract this from the total qualifying expenses to find the deductible amount: $9,700 - $3,750 = $5,950. Thus, Paul's medical expense deduction for 2021 is $5,950.

Answer 2

Paul's qualifying medical expenses for 2021 amount to $11,250, which includes doctor and hospital bills, prescribed medicines, and certain costs related to the dust elimination system. After accounting for the AGI threshold, his medical expense deduction for the year would be $7,500.

Step-by-step explanation:

The determination of Paul's qualifying medical expenses for 2021 includes the doctor and hospital bills, the prescribed medicines, and certain costs associated with the dust elimination system installed in his personal residence. To calculate the medical expenses deduction, one must consider only the expenses that exceed 7.5% of AGI.

The total of Paul's qualifying medical expenses for 2021 would be:

• Doctor and hospital bills: $4,500
• Prescribed medicines: $750
• Deductible portion of dust elimination system cost: $6,000 (since it increased the value of the residence by $6,000, only the excess cost is deductible)

The increase in utility bills is not a qualifying expense, and neither is the cost of the appraisal.

Thus, the total is $4,500 + $750 + $6,000 = $11,250.

Paul's medical expense deduction for 2021 would be:

Total qualifying expenses $11,250 - (AGI $50,000 x 7.5%) = $11,250 - $3,750 = $7,500.