rjs
Level 15
Level 15

Deductions & credits

What years are "this year" and "last year"? Were you reimbursed in 2018 for expenses that you deducted on your 2017 tax return, or were you reimbursed in 2019 for expenses that you deducted on your 2018 tax return?


The reimbursement that you received is an "itemized deduction recovery." You have to report the reimbursement as taxable income in the year that you received it, but you might not have to report the full amount as income. You report only the amount that actually reduced your tax in the earlier year. The calculation of the amount is complicated, and TurboTax will not do it for you. (It could be affected by other things besides the amount of medical expenses you deducted.) You have to do the calculation yourself outside of TurboTax, and enter in TurboTax the taxable amount that you calculated.


If the amount is small, you might want to just report the full amount of the reimbursement as taxable income to save yourself the trouble of doing the calculation. The IRS will not complain if you do that.


The rules for calculating the taxable amount that you have to report are in IRS Publication 525, pages 22 -26, beginning with "Recoveries" at the bottom of page 22. (Page numbers are for the 2018 edition.) You can download Publication 525 from the IRS web site at the following link.


Publication 525, Taxable and Nontaxable Income


Since your recovery is for medical expenses, don't forget to take into consideration the fact that your deduction for medical expenses was reduced by a percentage of your AGI. See Example 34 at the top of page 25 in Publication 525.


After you calculate the taxable amount that you have to report as income, you enter it in TurboTax. You should be able to get to the right place by entering "reimbursed deductions" (without the quotes) in the Search box, then clicking the link that says "Jump to reimbursed deductions."


If you need further help, please tell us the specific years that you took the deduction and received the reimbursement, whether you are using TurboTax Online or the CD/Download TurboTax software, and which edition (Deluxe, Premier, Home & Business, etc.).