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 $24,000. (Leave no answer blank. Enter zero if applicable.)

a. Last year L. A. and Paula had itemized deductions of $19,200, and they chose to claim the standard deduction. refund to be included: ?

b.  Last year L. A. and Paula claimed itemized deductions of $30,300. Their itemized deductions included state income taxes paid of $7,500 and no other state or local taxes. refund to be included?

        

Answer 1

a.) Last year L. A. and Paula had itemized deductions of $19,200, and they chose to claim the standard deduction. Hence, they have not availed any benefit from $5,200 of overpayment of state income taxes.  Therefore refund to be included will be $ 0 .

b.) Last year L. A. and Paula claimed itemized deductions of $30,300. Therefore they have received a tax benefit from $5,200 overpayment of state income taxes. The benefit of overpayment will be lesser of refund amount i.e. $5,200 or excess of itemized deduction over standard deduction i.e. $ 6,300 ( 30,300 - 24,000 ) . Therefore the refund to be included will be $ 5,200 .