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Rebecca and Gregory, a married couple filing a joint return, reported adjusted gross income $70,000 and...

Rebecca and Gregory, a married couple filing a joint return, reported adjusted gross income $70,000 and total allowable itemized deductions of $13,000, including $3,100 for state income taxes, in 2017. They received a $900 refund of state income taxes in April 2018. How much of the state income tax refund must be included in their income and in which year do they include it?

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Expert Solution

You have to report the state income tax refund you received last year on your federal income tax return if you itemized your deductions on your federal return last year.

A part or full of state income tax refund as per the following steps shall be included in the return of 2018 by Rebecca and Gregory

Step 1 : Enter the income tax refund received in the year 2018 that is $900

Step 2 : Enter your total itemized deductions from your 2017 that is $13000

Step 3 : Enter the amount shown below for the filing status claimed on your 2017 Form 1040

  • Single or married filing separately—$6,300
  • Married filing jointly or qualifying widow(er)—$12,600
  • Head of household—$9,300

Here the couple is married filing jointly therefore $12600 would have been claimed for the year 2017

Step 4 : Did you fill in line 39a on your 2017 Form 1040?

Since the information regarding the same is not given we assume it to be 0

Step 5 : Add steps 3 and 4 that is $12600 + 0 which is $12600

Step 6 : If the amount on step 5 is less than the amount on step 2 then subtract Step 5 from Step 2

That is $ 13000 - $ 12600 = $ 400

Step 7 : Taxable part of refund shall be lower of Step 1 & Step 6

That is Step 6 which is $ 400

Hence the couple should include $400 as state income tax refund in their return for 2018.

ekkarill92 answered 1 year ago
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