[GNC] Recovery vs. reimbursement

[Adam H. Kerman]

1:48pm -0000 05/30/26 Adam H. Kerman <ahk at chinet.com> wrote:

>I've got another recovery vs. reimbursement scenario.

>Taxpayer died in 2026. She paid a premium each month for a Medicare 
>supplemental. Her estate received a refund for a portion of her last month 
>of life.

>Thinking about it, her medical expenses paid during her lifetime, if they 
>are itemized deductions to the extent they exceed 7.5% AGI threshold, would 
>make the refund a recovery and possibly ordinary income to her estate as the 
>estate is a separate taxpayer.

>If she won't benefit from itemizing, the recovery won't be taxable, but it's 
>still a recovery and not a reimbursement booked as a contra expense because 
>it was received in the same tax year the expense was paid.

Here's another wrinkle. There is an election on the taxpayer's final tax 
return that medical expenses paid by the estate within a year may be 
deducted on the final tax return instead.

The reimbursement, though, is still a recovery, and not a contra expense.