My client Jim has a son named Billy.
Billy was in a serious car accident on 2-10-09, the day before his 18th birthday.
Billy was a passenger in a car that was hit by another car.
The driver of the other car had no insurance.
Jim had an insurance policy with coverage for uninsured motorist and after a legal fight Jim's insurance company paid out $250,000 for personal injury related to the accident.
Jim's attorney took 1/3 and that left Jim with approx. $165,000.
The $165,000 was received in 2010.
It is unclear at this point if the money was paid to Jim or to Billy, but I am not sure that it matters.
The money was for personal injury to Billy and as such it is not taxable.
It is my understanding that the money can be used for any purpose and there are no restrictions on how it is spent.
However, Jim set up an account for the money and is using it to pay ongoing medical expenses for Billy who is now considered disabled and continues to live at home.
During the year of 2010 Jim paid about $60,000 of medical expenses for Billy and used money from the account to do so.
It seems to me that Jim should be able to deduct the $60,000 as medical expense because Billy is still his dependent, ie, lives at home, is disabled, no job etc.
The insurance settlement money was paid under the label of "personal injury" with no conditions that any of it be paid for medical expense.
Since the money could be spent in any manner in Jim's discretion, it seems logical that we would not have to treat any portion of the $60,000 medical expense as being paid by insurance.
Has anyone had any experience in this sort of scenario?
Opinions?
Thank You,
Harvey Lucas
Billy was in a serious car accident on 2-10-09, the day before his 18th birthday.
Billy was a passenger in a car that was hit by another car.
The driver of the other car had no insurance.
Jim had an insurance policy with coverage for uninsured motorist and after a legal fight Jim's insurance company paid out $250,000 for personal injury related to the accident.
Jim's attorney took 1/3 and that left Jim with approx. $165,000.
The $165,000 was received in 2010.
It is unclear at this point if the money was paid to Jim or to Billy, but I am not sure that it matters.
The money was for personal injury to Billy and as such it is not taxable.
It is my understanding that the money can be used for any purpose and there are no restrictions on how it is spent.
However, Jim set up an account for the money and is using it to pay ongoing medical expenses for Billy who is now considered disabled and continues to live at home.
During the year of 2010 Jim paid about $60,000 of medical expenses for Billy and used money from the account to do so.
It seems to me that Jim should be able to deduct the $60,000 as medical expense because Billy is still his dependent, ie, lives at home, is disabled, no job etc.
The insurance settlement money was paid under the label of "personal injury" with no conditions that any of it be paid for medical expense.
Since the money could be spent in any manner in Jim's discretion, it seems logical that we would not have to treat any portion of the $60,000 medical expense as being paid by insurance.
Has anyone had any experience in this sort of scenario?
Opinions?
Thank You,
Harvey Lucas
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