Is paying a WI medical assistance lien a medical expense

Forum|Forum|5 years ago
August 9, 2021
8 replies
18 views

Taxpayer is permanently disabled and WI medicaid paid his medical bills and long term care expenses. A "medical assistance lien" was placed against his house. The house was sold in 2020 and WI accepted the sale proceeds for the medicaid lien. Could the client's payment to the state of WI be considered as a medical expense deductible on Sch A?

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Best answer by Terry53029

I'm thinking the taxability of the home is separate from the Sch A medical expense deduction. If he doesn't qualify to exclude the gain because he did not live in the home for two of the last five years, then all the $23,000 would be taxable. However, even if the gain is not taxable, he didn't get to keep the money. All the $23,000 went to WI, so does he have a $23,000 medical expense?

As others have said Yes, as he owned home, home was sold and used to pay his medical bills

BobKamman

Level 15

Did the sale of the house cause the taxable income? Generally Medicaid recipients are nonfilers because they would not qualify if they had enough income to owe tax. How long since they moved out of the house? In any case, I don't think Medicaid pays any expenses that do not qualify as medical, so yes it would be deductible. In some states the amount is based on a pro-rata amount, so everyone pays the same amount regardless of how little or how much is spent on them, but that would still keep it in the nature of an insurance policy.

M

mapppAuthor

Level 5

Bob, thanks for the response. I've asked his guardian if he lived in the house for two of the last five years. I'm not sure how long he's been disabled and unable to live on his own. WI says they paid over $345,000 in medical expenses and the proceeds of the house sale is $23,000. But I would consider the taxability of the home sale as a separate issue. The $23,000 proceeds were paid to the state as required. I've researched deductible medical expenses, and can't find any reference to the issue of medicaid loan repayment as a deductible medical expense addressed. Taxpayer is single, still living, just unable to live on his own and is currently in adult care. The first TY I prepared his return is 2018, so it is possible the home sale would not be taxable.

sjrcpa

Level 15

There is some rule about getting extra time when you are in a nursing home. see Section 121.

And if the sale price was $23,000, how much gain can there be?

The more I know the more I don’t know.

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