You Make the Call - Jan. 11, 2024

Question: Joey filed a joint return on Form 1040 for 2022 with taxable income of $45,000. His itemized deductions were $26,350, comprised mostly of medical expenses. The standard deduction that he could have claimed was $25,900. Joey's total itemized deductions exceeded the standard deduction by $450 ($26,350 - $25,900). In 2023 he recovered $2,100 of the itemized deductions he claimed in 2022 when insurance reimbursed some of his medical expenses. The amount recovered does not exceed the deduction claimed on Schedule A. What is the amount of taxable income he must report in 2023, the year of recovery?

Answer: Joey will recover the lesser of two amounts: the recovered amount or the amount by which the itemized deductions exceed the standard deduction. In this case, Joey will Include $450 of the recoveries in his 2023 income. This is the smaller of:

• His recovery of $2,100
• The amount by which his itemized deductions were more than the standard deduction $450 ($26,350 - $25,900)