Question

L. A. and Paula file as married taxpayers. In August of this year, they received a $6,120 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 $12,700. (Leave no answer blank. Enter zero if applicable.)

a. Last year L. A. and Paula had itemized deductions of $10,600, and they chose to claim the standard deduction.
b. Last year L. A. and Paula claimed itemized deductions of $25,300. Their itemized deductions included state income taxes paid of $9,560.
c. Last year L. A. and Paula claimed itemized deductions of $19,750. Their itemized deductions included state income taxes paid of $10,200.

Answer 1

Answer:

(A) In this case there is no itemized deduction because of L.A Paula has received the amount of 6120 and has itemized deduction is 10600 so the tax was overpayment. Hence none of the refund is included in the gross income.

(B) In 2nd one case there was the itemized deductions L.A Paula has received a tax benefit for lesser of the refund is 6120, so the calculation is standard deduction 12700 & itemized deduction is 25300.

So according to calculation excess of the itemized deductions above standard deduction (25300-12700=12600) hence they must include the entire amount 6120 included in the gross income.

(C) In 3rd one case there was the itemized deductions L.A Paula has received a tax benefit for lesser of the refund is 6120, so the calculation is standard deduction 12700 & itemized deduction is 19750.

So according to calculation excess of the itemized deductions above standard deduction (19750-12700=7050) hence they must include the entire amount 6120 included in the gross income..