Schedule E Rental Property

[Special Touch]

Tax Client wants to deduct medical costs incurred by a repair man while working on rental property. The workmans compensation insurance was not in force at the time of injury. The tax client become liable for the medical costs. Is this an allowable expense to take on the Schedule E?

[Uncle Sam]

You haven't stated whether the repairman is an employee of the rental property or an outside contractor. Or what type of other insurance coverage there is.

[Rapid Robert]

Tax Client wants to deduct medical costs incurred by a repair man

No, the taxpayer cannot take a business (including rental) expense deduction for medical costs incurred by a vendor.

The tax client become liable for the medical costs.

What event triggered this liability? What is the nature of the liability? Contractual? Result of a civil court action? Did the taxpayer have an agreement of some kind with the provider of the medical services (the one billing these costs)?

[ATSMAN]

I am not sure if this example helps but I had a client with a rental unit who got sued by a plumber because the occupant's dog bit him. He was forced to hire a lawyer and settle out of court with the plumber and property insurance co. The legal fees were a deduction on Sch E.

[sami]

It is probably not deducted as medical expense but maybe the settlement amount the landlord paid out of pocket might be a deduction. If the landlord's property insurance did not cover it.

[Special Touch]

The constuction man sued the property owner for his medical cost, as the property owner did not have workman's compensation in place and the repair man did not have health care coverage. Settlement was reached with the plaintiff receiving $117,500.00.

[TAXNJ]

The constuction man sued the property owner for his medical cost, as the property owner did not have workman's compensation in place and the repair man did not have health care coverage. Settlement was reached with the plaintiff receiving $117,500.00.

Where have you researched so far so not to repeat your research?

Have you looked in TheTax Book?

[ATSMAN]

The constuction man sued the property owner for his medical cost, as the property owner did not have workman's compensation in place and the repair man did not have health care coverage. Settlement was reached with the plaintiff receiving $117,500.00.

Was the construction man an employee of the property owner? If not then there is no law that says that workman's comp is required.

Did the property owner have general liability insurance?

If the construction man was an independent contractor, did the property owner check if he was licensed and insured?

If a settlement to a lawsuit against the property owner was reached then see my post above. It was deducted as legal expenses not as medical expenses.

[TAXNJ]

.....If a settlement to a lawsuit against the property owner was reached then see my post above. It was deducted as legal expenses not as medical expenses.

Should the Original Poster base their decision reference on the tax return you prepared or do you have a code reference for support for any deduction?

[ATSMAN]

Should the Original Poster base their decision reference on the tax return you prepared or do you have a code reference for support for any deduction?

Let the OP decide how to handle this. I am just giving an example of a situation I had to deal with.

[Rapid Robert]

Was the construction man an employee of the property owner?

Probably was an employee but mis-classified by the taxpayer. OP said "repair man", not construction man, it makes a difference as to whether expense is ordinary or capital.

If a settlement to a lawsuit against the property owner was reached then see my post above. It was deducted as legal expenses not as medical expenses.

Legal fees are paid to an attorney for providing a service. A lawsuit settlement is not a "legal fee" or "legal expense". PLR-121178-13 provides some support for the settlement (but not punitive damages, if any) being an ordinary/necessary business expense. (If the settlement was related to a capital project, it would have to be a capitalized expense).