CPA Exam — REG (Regulation)Federal Taxation of IndividualsMedium
A married couple filing jointly has an AGI of $150,000. They incurred $12,000 in qualified unreimbursed medical expenses. What is the maximum amount of medical expenses they can include in their itemized deductions?
- A$1,250
- B$1,500
- C$0
- D$4,500
Show answer & explanationAnswer & explanation
Correct answer: B. $1,500
Medical expenses are deductible only to the extent they exceed 7.5% of the taxpayer's adjusted gross income (AGI). For this couple, the AGI is $150,000. The threshold is 7.5% of $150,000 = $11,250. The deductible amount is the total expenses minus this threshold: $12,000 - $11,250 = $750.
Why the other options are wrong
- A. This option is incorrect; it does not reflect the correct calculation.
- C. This option is incorrect as there are deductible medical expenses.
- D. This option is incorrect; it does not reflect the correct calculation.
Medical Expense Deduction
Taxpayers can deduct qualified unreimbursed medical expenses that exceed 7.5% of their Adjusted Gross Income (AGI) as an itemized deduction.
- Threshold is 7.5% of AGI.
- Includes payments for diagnosis, cure, mitigation, treatment, or prevention of disease.
- Also includes prescription drugs, insulin, and certain long-term care services.
Memory trick: Medical expenses are deductible after you 'Heal' past the AGI threshold.