CPA Exam — REG (Regulation)Federal Taxation of IndividualsMedium
A client, single, age 60, has an Adjusted Gross Income (AGI) of $90,000. They incurred $10,000 in qualified medical expenses during the year. What is the maximum amount of these medical expenses that can be deducted for tax purposes, assuming they itemize deductions?
- A$3,250
- B$0
- C$2,250
- D$10,000
Show answer & explanationAnswer & explanation
Correct answer: A. $3,250
Medical expenses are deductible only to the extent they exceed 7.5% of the taxpayer's Adjusted Gross Income (AGI). In this case, 7.5% of $90,000 AGI is $6,750. Therefore, $10,000 (total expenses) - $6,750 (AGI threshold) = $3,250 deductible.
Why the other options are wrong
- B. This would only be correct if the expenses did not exceed the AGI threshold.
- C. This calculation is incorrect, perhaps using a wrong AGI threshold percentage.
- D. This would be correct only if there was no AGI limitation on medical expense deductions.
Medical Expense Deduction AGI Limit
Qualified medical expenses are deductible only to the extent they exceed 7.5% of the taxpayer's Adjusted Gross Income (AGI).
- Deduction is an itemized deduction.
- Only 'qualified' medical expenses count.
- The AGI threshold is 7.5% for all taxpayers (as of current law).
Memory trick: Medical expenses hurt, but AGI threshold can reduce the tax sting.