Does a incapacitated person have to pay Federal income taxes?

[T-MAC]

My sister-in-law is in an Alzheimer nursing home. She has been there for over 10 years.

My wife was appointed Guardian a year ago, and I am trying to do my sister-in-law's taxes.

We had to sell her AT&T stock in order to pay her nursing home expenses after her Long Term Care Insurance terminated. I presume she acquired the stock as a employee benefit while working for AT&T.  The "Cost Basis" has not been provided.

My question is: Is the sale of her stock taxable in light of the fact that it is being used for medical & nursing home expenses. Her money has been disappearing at the rate of $7,500. per month.

[DawnC0 · Accepted solution]

The sale of the stock is a taxable transaction, however, her medical expenses (the amount over 7.5% of her AGI) are deductible from the income if you itemize.  And it sounds like her medical expenses will far outweigh her standard deduction.  For nursing home expenses, you can include in medical expenses the cost of medical care in a nursing home.  This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care.  Don't include the cost of meals and lodging if the reason for being in the home is personal. 

When entering the sale of the AT&T stock, try to find a cost basis, as this will lower the taxable amount.  If you use 0 as the basis, all of the proceeds become taxable.  You may be able to get the information from AT&T.  This article may help.  There are also links to other suggestions at the bottom.  Determining Stock Cost Basis