Medical deduction dilemma.?

Question

I am self-employed and pay for my medical insurance. For 2005 I was able to reach the 7.5% needed to deduct medical expenses. For 2006, I had crappy insurance where I had to pay everything upfront and they would reimburse me 80% (drugs, procedures, visits, etc . . . ) I would count the 20% that I still had to pay towards my medical deduction but never the 80% I got paid back. I have since switched to an HMO (which is kinda crappy in itself) but at least I don't have to pre-pay.

My dilemma is I have two large medical expenses that I prepaid but have not been reimbursed the 80% by my ex-insurance. I am in dispute over them trying to get them reimbursed with no such luck. Should I just deduct the full amounts because I paid the bills in 06 and their future reimbursement is uncertain? Will it matter if I eventually do get reimbursed in 2007?

Answer 1

You can claim the expenses paid in 2006.

If you subsequently receive reimbursement for the expenses, include the amount of the reimbursement on the "Other Income" line on Form 1040 (line 21 for 2006) for the tax year where you receive reimbursement.

For example, if you claim the deduction for 2006 and it reduces your tax and then get reimbursement in 2007, enter the amount of the reimbursement on line 21 (or whatever the Other Income line is in 2007) of your 2007 Form 1040. There is no penalty and you do not need to amend your 2006 return.

Answer 2

You may deduct it all in 2006 but the 80% the insurance company pays you in 2007 will have to be included as additional income in 2007.

Answer 3

well...here's what I would do. Ask a local tax preparer for the claiming on your taxes...then I would get a hold of a free consultation lawyer and see if you could have a case. But I bet $20 somewhere in the contract with your old insurance company there is a stipulation in it saying that if you cancel. They are not obligated to reimbursed you for remaining money's due.