Question

1. Naomi was the beneficiary of a $100,000 insurance policy on her mother who died in January 2017. It took the insurance company several months to make the payment so she received $100,206 in May 2017. She was a joint tenant on a bank account with her mother. She inherited the $14,000 in the account that had all been deposited by her mother. After a long battle with her medical insurance company, Naomi received a $7,000 reimbursement in 2017 for an operation that she underwent in 2015. As a result of her high medical expenses, she was able to claim $7,000 in itemized deductions on her 2015 tax return rather than taking the $6,300 standard deduction. What are Naomi’s taxable income items from these events for 2017?

Answer 1

$1,006. Naomi must recognize the additional $206 received from the insurance company as interest income and $700 of the $7,000 reimbursement must be also included in income—the tax benefit she received from itemizing deductions ($7,000 - $6,300) in 2015. Neither the $14,000 received as an inheritance nor the $100,000 basic life insurance proceeds are included in income