Discussion:Election to claim medical expenses on final 1040
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| + | "shall be treated as paid by the taxpayer at the time incurred." }} | ||
Revision as of 23:55, 2 November 2009
Discussion Forum Index --> Tax Questions --> Election to claim medical expenses on final 1040
| 2 November 2009 | |
| Here's my situation: Client was age 58 in 2008, and withdrew about $12,000 from IRA in mid-2008. Client died from an accidental fall on Dec 12, 2008. He was in the hospital for about two weeks prior to death and incurred medical bills of over $100,000 (no insurance). I prepared the final 1040 for 2008 tax year and elected to claim medical expenses paid w/in one year of death on final 1040. Also filed Form 5329 excluding 10% penalty due to medical expenses in excess of 7.5% of AGI. AGI on final 1040 was about $16,000 - no tax liability on the final 1040.
Estate is not large enough to have a filing requirement for estate tax, but does have sufficient assets to pay medical expenses. Estate has not paid any medical bills yet. I want attorney and personal rep to pay at least enough by Dec 10, 2009 to show no tax liability on final Form 1040 -- I will amend the originally filed return to show actual amount of medical expenses paid under the election. The question: I assume that the exclusion from the 10% penalty will apply on the final 1040, even though the medical expenses were not actually paid in 2008 tax year, but are allowable under the election. Am I correct? Personal rep wants to know so that she can close out estate, but not have to later come up with funds to pay additional tax if IRS disallows the 10% exception. | |
| 2 November 2009 | |
| Sec. 213(c)
The survivor or personal representative of a decedent can choose to treat certain expenses paid by the decedent's estate for the decedent's medical care as paid by the decedent at the time the medical services were provided. The expenses must be paid within the 1-year period beginning with the day after the date of death. If you are the survivor or personal representative making this choice, you must attach a statement to the decedent's Form 1040 (or the decedent's amended return, Form 1040X) saying that the expenses have not been and will not be claimed on the estate tax return. | |
| 2 November 2009 | |
| I found the following Tax Court case:
The court emphased that 72(t)(2)(B) for the exception from the 10% penalty for medical expenses only applies to expenses PAID during the year of the withdrawal regardless of any elections available and only to the amount that exceeds 7 1/2 % of AGI on the Schedule A calculation for that year. | |
| 2 November 2009 | |
| Thanks - I looked at the TC case, and as you said, it appears the exception will not apply because of the specific language of 72(t)(2)(B). Since this is not a repayment of a loan for medical expenses (as in the TC case) but a direct payment to the medical providers, I'd like to think I could still argue for the 10% exception -- especially because it would have been literally impossible for the personal representative to be legally authorized and appointed to pay any medical bills in the short time frame before end of year.
The medical bills far exceed funds available in the estate, so the personal representative definitely does not want to have this come back to bite her, and then have to pay the taxes from her personal account. She could leave a reserve for anticipated tax liability, but does not want to do this, as that complicates any subsequent proportionate distribution to the multiple medical claimants and just forces the estate to remain open longer. The 10% amount is about $1,200 -- I may be best off to just put it in the final 1040 and forget about a Form 5329. Since there will be no funds to distribute to the beneficiaries, it's just a question of whether IRS or the medical providers get it. | |
| 2 November 2009 | |
| The exception will apply. Code specific.
"shall be treated as paid by the taxpayer at the time incurred." | |
