Assume the same facts as in Problem 7-35. In addition, assume that in 2016, Angela receives an additional $7,000 in a settlement of a lawsuit arising because of the snow-skiing accident. $4,000 of the settlement is to pay Angela’s medical bills, and $3,000 is to reimburse her legal expenses. What is the proper tax treatment of this $7,000 settlement?
In problem 7-35
During 2015, Angela sustains serious injuries from a snow-skiing accident. She incurs the following expenses:
Item Amount
Doctor bills ………………………………….. $11,700
Hospital bills …………………………………. 9,400
Legal fees in suit against ski resort …………… 3,000