Question

Veronica filed as a single taxpayer in 2019. Her AGI was $249,000, and itemized deductions were $45,600. Her local property taxes were $15,600 and her state income taxes were $20,000. In 2020, Veronica received a $3,000 refund of the state income taxes she paid in 2019. The standard deduction for single filers in 2019 was $12,200.

Apply the tax benefit rule to determine the amount of the state income tax refund included in gross income in 2020.

Answer 1

0 will be added ie refund will not be added in Veronica gross income in 2020

	2019
Total Itemise Deduction taken for State and Local taxes	$10000
Total Standard deduction limit in 2019	$12200
	$2200

As the difference in itemised deduction taken for State and local taxes are lower than Standard Deduction , No refund will be Included in Veronica Income

As per Section 164 there is limit of adding Itemised Deduction for State  and Local Taxes Limit is upto $10000

1)An itemized deduction is an expenditure on eligible products, services, or contributions that can be claim as deduction to reduce your tax bill. Itemized deductions are listed on Schedule A of Form 1040

2)Standard deduction is provided by federal law , which is not itemised deduction

3)As per IRS , Federal law If tax payer get refund in past year due to Itemized deduction and the benefit arises from such deduction will be taxable in the current year if any refund arises from that itemise deduction, but any refund arises due to non itemise deduction ie standard deduction is claimed in past year , than no tax liability will arise on that refund and it will not be included in current assessment year

As the State tax was 20000 of out which only $10000 can be itemised hence the refund benefit is not arising due to itemised deduction of state tax