L. A. and Paula file as married taxpayers. In August of this year, they received
ID: 2774350 • Letter: L
Question
L. A. and Paula file as married taxpayers. In August of this year, they received a $5,200 refund of state income taxes that they paid last year. How much of the refund, if any, must L. A. and Paula include in gross income under the following independent scenarios? Assume the standard deduction last year was $12,200
Last year L. A. and Paula had itemized deductions of $10,200, and they chose to claim the standard deduction. Refund to be included=
Last year L. A. and Paula claimed itemized deductions of $23,000. Their itemized deductions included state income taxes paid of $7,500. Refund to be included=
Last year L. A. and Paula claimed itemized deductions of $15,000. Their itemized deductions included state income taxes paid of $10,500. Refund to be included=
a.Last year L. A. and Paula had itemized deductions of $10,200, and they chose to claim the standard deduction. Refund to be included=
b.Last year L. A. and Paula claimed itemized deductions of $23,000. Their itemized deductions included state income taxes paid of $7,500. Refund to be included=
c.Last year L. A. and Paula claimed itemized deductions of $15,000. Their itemized deductions included state income taxes paid of $10,500. Refund to be included=
Explanation / Answer
A. Because they did not itemized their deductions,L.A. and Paula received no benefit from the $5200 tax overpayment. Hence,none of the refund is included in gross income.
B. L.A. and paula received a tax benefit for the lesser of the refund ($10200) or the excess of the itemized deductions above the standered deduction (23000-11600=$11400). Hence they must include the entire $5200 refund in gross income.
C.L.A. and paula received a tax benefit for the lesser of the refund( $5200) or the exess of the itemized deductions above the standard deduction( 15000-11600=$3400). Hence they must include $3400 of the 5200 refund in gross income.
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