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PT 5 Publication 502 (2009), Medical and Dental
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 Posted 11:08 PM Feb. 28, 2010 Worksheet D. Adjusted Basis of Medical Equipment or Property Sold
Next, use Worksheet E to figure the total gain or loss on the sale of the medical equipment or property. Worksheet E. Gain or Loss On the Sale of Medical Equipment or Property
If you have a loss, it is not deductible. If you have a gain, it is includible in your income. The part of the gain that is a recovery of an amount you previously deducted is taxable as ordinary income. Enter it on Form 1040, line 21. Any part of the gain that is more than the recovery of an amount you previously deducted is taxable as a capital gain. Enter it on Schedule D (Form 1040), Capital Gains and Losses. For more information about the recovery of an amount that you claimed as an itemized deduction in an earlier year, see Recoveries in Publication 525. Example. You have a heart condition and difficulty breathing. Your doctor prescribed oxygen equipment to help you breathe. Last year, you bought the oxygen equipment for $3,000. You itemized deductions and included it in your medical expense deduction. Last year you also paid $10,750 for deductible medical services and $6,400 for other itemized deductions. Your AGI was $15,000. Taking into account the 7.5% limit on medical expenses, your allowable itemized deductions totaled $19,025, figured as follows:
You figure your adjusted basis as shown on the filled-in Worksheet D. Worksheet D. Adjusted Basis of Medical Equipment or Property Sold—Illustrated
Worksheet E.Gain or Loss On the Sale of Medical Equipment or Property—Illustrated
If you receive an amount in settlement of a personal injury suit, part of that award may be for medical expenses that you deducted in an earlier year. If it is, you must include that part in your income in the year you receive it to the extent it reduced your taxable income in the earlier year. See What If You Receive Insurance Reimbursement in a Later Year , discussed earlier under How Do You Treat Reimbursements. Example. You sued this year for injuries you suffered in an accident last year. You sought $10,000 for your injuries and did not itemize your damages. Last year, you paid $500 for medical expenses for your injuries. You deducted those expenses on last year's tax return. This year you settled your lawsuit for $2,000. Your settlement did not itemize or allocate the damages. The $2,000 is first presumed to be for the medical expenses that you deducted. The $500 is includible in your income this year because you deducted the entire $500 as a medical expense deduction last year. Future medical expenses. If you receive an amount in settlement of a damage suit for personal injuries, part of that award may be for future medical expenses. If it is, you must reduce any future medical expenses for these injuries until the amount you received has been completely used.
Example. You were injured in an accident. You sued and sought a judgment of $50,000 for your injuries. You settled the suit for $45,000. The settlement provided that $10,000 of the $45,000 was for future medical expenses for your injuries. You cannot include the first $10,000 that you pay for medical expenses for those injuries. Workers' compensation. If you received workers' compensation and you deducted medical expenses related to that injury, you must include the workers' compensation in income up to the amount you deducted. If you received workers' compensation, but did not deduct medical expenses related to that injury, do not include the workers' compensation in your income.
If you are disabled, you can take a business deduction for expenses that are necessary for you to be able to work. If you take a business deduction for these impairment-related work expenses, they are not subject to the 7.5% limit that applies to medical expenses. You are disabled if you have:
Impairment-related expenses defined. Impairment-related expenses are those ordinary and necessary business expenses that are:
Where to report. If you are self-employed, deduct the business expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses.
If you are an employee, complete Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. Enter on Schedule A (Form 1040), line 28, that part of the amount on Form 2106, line 10, or Form 2106-EZ, line 6, that is related to your impairment. Enter the amount that is unrelated to your impairment on Schedule A (Form 1040), line 21. Your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to other employee business expenses.
Example. You are blind. You must use a reader to do your work. You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. The reader's services are only for your work. You can deduct your expenses for the reader as business expenses. If you were self-employed and had a net profit for the year, you may be able to deduct, as an adjustment to income, amounts paid for medical and qualified long-term care insurance on behalf of yourself, your spouse, and your dependents. For this purpose, you were self-employed if you were a general partner (or a limited partner receiving guaranteed payments) or you received wages from an S corporation in which you were more than a 2% shareholder. The insurance plan must be established under your trade or business and the deduction cannot be more than your earned income from that trade or business. You cannot deduct payments for medical insurance for any month in which you were eligible to participate in a health plan subsidized by your employer or your spouse's employer. You cannot deduct payments for a qualified long-term care insurance contract for any month in which you were eligible to participate in a long-term care insurance plan subsidized by your employer or your spouse's employer. If you qualify to take the deduction, use the Self-Employed Health Insurance Deduction Worksheet in the Form 1040 instructions to figure the amount you can deduct. But if any of the following applies, do not use the worksheet.
If you cannot use the worksheet in the Form 1040 instructions, use the worksheet in Publication 535, Business Expenses, to figure your deduction. Note.When figuring the amount you can deduct for insurance premiums, do not include any advance payments shown in box 1 of Form 1099-H. Also, if you are claiming the health coverage tax credit, subtract the amount shown on Form 8885, line 4 from the total insurance premiums you paid. Also, do not include amounts paid for health insurance coverage with retirement plan distributions that were tax-free because you are a retired public safety officer. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides that if you were covered under a group health plan and you would lose coverage because of a qualifying event, you should be allowed an opportunity to elect COBRA continuation health coverage under the plan. If there was no available election, your employer or the plan was subject to an excise tax. You can be required to pay the full premium for the COBRA continuation coverage. If you are an assistance eligible individual, you pay 35% of the premium otherwise payable for this coverage and are treated as having paid the full premium. You are an assistance eligible individual if:
A qualified beneficiary is generally any individual who is covered under a group health plan on the day before the involuntary termination. This includes the covered employee, the employee’s spouse, and the employee’s dependent. The premium assistance (the 65% reduction of the premium) applies to the first period of coverage beginning after February 16, 2009. The reduction applies until the earliest of:
The premium assistance is not included in your gross income. However, if your modified adjusted gross income (AGI) is more than $125,000 ($250,000 if married filing jointly) but not more than $145,000 ($290,000 if married filing jointly), your income tax for the year is increased by a percentage of the premium assistance. Use Worksheet F to figure the amount you must include as tax on your return. If your modified AGI is more than $145,000 ($290,000 if married filing jointly), your income tax for the tax year is increased by the total premium assistance. Include the increase in your income tax on Form 1040, line 60 or Form 1040NR, line 57. On the dotted line next to that line, enter the amount of the tax and identify it as “COBRA.” Worksheet F.Recapture of COBRA Premium Assistance for Higher Income Taxpayers
You may elect to permanently waive the right to the premium assistance. You will not receive the premium assistance and you will not have to include the assistance in your income tax if your modified AGI is more than $125,000 ($250,000 if married filing jointly). To make this election, give a signed and dated notification (include a reference to “permanent waiver”) to the person to whom premiums are payable. You will not qualify for the health coverage tax credit (discussed next) for any month for which you receive premium assistance. For more information see Notice 2009-27, available at www.irs.gov/irb/2009-16_irb/ar09. If you paid the premiums for qualified health insurance coverage, you may be able to claim the health coverage tax credit (HCTC). If you are eligible, you can get monthly HCTC (advance payments), a yearly HCTC, or a combination of these methods (see How To Take the Credit , later). For 2009, the HCTC is 65% of the premiums paid for coverage in January through April, and 80% of the premiums paid for coverage in May through December. For 2010, the HCTC is 80% of the premiums paid for coverage in each month. More information. For a complete discussion of the HCTC, visit our website www.irs.gov and enter “hctc” in the search box. Also, see Form 8885.
You can take this credit for any month in which all of the following were true on the first day of the month.
If you were an eligible recipient described in (1), your state’s workforce agency (unemployment office) or the PBGC will notify the HCTC Program that you may be eligible for the credit. When notified, the HCTC Program will mail you an HCTC Program Kit. If you have not received the Program Kit, you probably are not an eligible recipient and do not qualify for the credit. It can take the state or PBGC time to notify the HCTC Program about the event. You should make the full premium payments to your health plan until you are enrolled in the HCTC Program. You may be able to claim the yearly HCTC for these premiums when you file your tax return.
No credit if exemption claimed by another taxpayer. You cannot take this credit if you can be claimed as an exemption on someone else's tax return.
 You can include the premiums you pay for qualified health insurance for qualifying family members in figuring your credit. A qualifying family member is:
However, anyone who has other specified coverage (defined later), is not a qualifying family member. Both spouses eligible. Your spouse is not treated as a qualifying family member if:
Married and living apart. For purposes of this credit, you are not considered married on the last day of the year if all of the following apply.
Legally separated. You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance.
Children of divorced or separated parents. Under the rules for medical expenses, a child of divorced or separated parents can be treated as a dependent of both parents if certain requirements are met. See Qualifying Child under Whose Medical Expenses Can You Include, earlier. However, for purposes of the HCTC, only the custodial parent can treat the child as a qualifying family member, even if the other parent can claim the child as a dependent. The custodial parent is the parent having custody for the greater portion of the tax year.
The following health insurance qualifies for the credit.
COBRA continuation coverage allows individuals who had lost their jobs to receive a reduction in health insurance premiums. You do not qualify for the HCTC for any month that you received a reduction in premium.
State-qualified health insurance. Certain state qualified health insurance can qualify for a credit. To find out which plans are qualified for your state, you can:
The following health insurance does not qualify for the credit.
Insurance that covers other individuals. If you have qualified health insurance that covers anyone besides yourself and your qualifying family member(s), (defined earlier), you may not be able to take into account all of your payments. You cannot treat an amount as paid for insurance for yourself and qualifying family members unless all of the following requirements are met.
Eligibility for the credit is determined on a monthly basis. An eligible coverage month is any month in which, as of the first day of the month, you:
If you file a joint return, only one spouse has to satisfy the requirements. An individual who receives COBRA premium assistance (discussed earlier) for a month is disqualified from receiving the HCTC for that month. Even if you are otherwise eligible, you are not eligible for the credit for a month if, as of the first day of the month, you have other specified coverage. Other specified coverage is coverage under the following.
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