QR & Medical Expenses

[Lion EA]

Unemployed adult lived with his parents all of 2020. Had huge medical expenses/mental health expenses, which were paid for from a trust set up by grandparents. (I think, confirming with client.) Because parents will claim him as QR, can parents deduct son's medical expenses? Does it matter if parents or son or trust paid? (It's looking like they were on father's credit card, but might've been reimbursed by trust.)

[jklcpa]

If parents meet the requirements to claim him as QR, then parents can deduct the NET medical expenses they paid, net of any reimbursements from insurance, the trust, or from other parties.

Assuming you are asking about 2020 deductions, this would include any net expenses PAID IN 2020 for medical services or expenses of 2019 even if son wasn't a QR for that prior year.  For medical expenses paid for services that extend substantially beyond the end of a tax year generally aren't deductible (exception is LTC premiums), but for example, if the parents paid for in-patient rehab in late Dec for a couple of months into 2021, I'd be inclined to deduct that because many of those facilities expect payment up front at admission and may give a discount, for example if paying for 90 days in advance. 

Didn't look up the part about the trust, but I think the expenses paid by the trust could be a deduction there if it's a SNT, and that reduces the income of the trust that potentially is passed to the beneficiary. 

[Lion EA]

Thank you, Judy. I was finding a lot about being a qualified dependent/QR, but very little about the parents then deducting unreimbursed medical expenses for that QR, especially if paid by that QR.

The trust is not a SNT; grandparents started in years ago thinking about college needs, etc., but no restrictions other than mother is trustee.

The young adult has mental health issues, so insurance reimburses only some of his expenses. And, he has premiums plus two providers that do NOT take insurance reimbursement. Dad's looking, but much of that ultimately was paid for by son's trust, maybe. (The paperwork looks like the charges on on dad's credit card.) So, we're still looking at if parents paid over half their son's support. (Two lawyers in Westport, CT, so living expenses, car, etc., add up fast in pricey Fairfield County, even if son covered his own medical.)

This family is very nice, responsive, and hadn't been difficult to prepare (5 returns) -- until 2020. The above son has been moving around to ski areas and working, CT to UT to CT to CO to CT, so a lot of PY returns over the last decade. Brother was in law school but graduated, married, and moved in with parents for 2020, then Covid hit which slowed job hunting; for 2021 he's back in NYC, so I expect a NY issue with NY claiming his residency did not change to CT for 2020. (This brother's trust ended in 2019; an IRS letter showed up last year re a Fidelity account no one knew was now in brother's name.) And parents, who've been easy W-2 people even though very high income and a fair amount of investments, now have 4 K-1s and two "trust letters"/revocable trusts due to wife's mother passing and leaving very substantial investments. I've spent a whole week drafting these three returns (prepared son's trust in March) just to get to a point to ask questions, to explore dependency, to explore residency, etc. Price is going up this year!

All that to say I might be back with more questions...

[Margaret CPA in OH]

Lion, just wow!  Take your time and don't forget to take care of you.  At least it's perhaps a bit slower now overall for you. 

[Lee B]

Lion, that's a really tangled web that you are working on

[Lion EA]

I know. They've been a great family of five returns: 2 trusts that were almost identical and only investments, 2 kids but dad's a banker/lawyer who organized all the paperwork for all 5 returns, and the parents who were W-2 and not much else. 2020 everyone had major life changes; some beginning in 2019 when 1 trust distributed to older son, and younger son dropped out of college to move around. 2020 is so different for the whole family! Thank goodness, Dad is still a great organizer and researcher who can track down answers to my questions. Sons are responsive, also. And, mom is really sweet. If they were not nice people, I'd have fired them this year!

I've been moving so slowly this year with constant tax law changes. I have more people on extension then ever before. Trying to take Sundays off. And, we just visited PA for the first time since Christmas before Covid to play with our granddaughters all last week. Thought I was rested and ready for work this week, but as cbslee described it, it's a really tangled web.

When I get through this family, I think I have more normal returns left. I hope!

[BulldogTom]

33 minutes ago, Lion EA said:

more normal returns left. 

What are those?   Haven't seen one in over a year.

Tom
Sparks, NV

[Lion EA]

Tom, you're right. I think ALL my clients had large changes this year: unemployment, taking more from savings, residency issues (they think they don't have to file in NY, for instance), more than one with a parent that passed away and left them investments (&/or the parent's also my client), kid was home from college, grown kids returned home, loss of jobs & job searches, new SE work, etc. And, few of them were ever stable in the past and none simple.

That's why we need each other!