Question

Louis files as a single taxpayer. In April of this year he received a $1,260 refund of state income taxes that he paid last year. How much of the refund, if any, must Louis include in gross income under the following independent scenarios? Assume the standard deduction last year was $6,350. (Leave no answer blank. Enter zero if applicable.)

a. Last year Louis claimed itemized deductions of $6,466. Louis’s itemized deductions included state income taxes paid of $2,140.
Refund to be included:

b. Last year Louis had itemized deductions of $4,220 and he chose to claim the standard deduction. Louis’s itemized deductions included state income taxes paid of $2,140.

Refund to be included:

c. Last year Louis claimed itemized deductions of $8,230. Louis’s itemized deductions included state income taxes paid of $3,830.

Refund to be included:

Answer 1

Last year Louis claimed itemized deductions of $6,466. Louis’s itemized deductions included state income taxes paid of $2,140.

Louis receives a tax benefit for least of the following

Refund amount $1260 or

Excess of itemized deduction above the standard deduction ($6466-$6350 = $116)

Hence Louis must include $116 of the refund $1260

b. Last year Louis had itemized deductions of $4,220 and he chose to claim the standard deduction. Louis’s itemized deductions included state income taxes paid of $2,140.

Louis doesn’t receive any tax benefit from the overpayment of tax $1260 as he didn’t itemized his deductions. so no refund is included in gross income

c. Last year Louis claimed itemized deductions of $8,230. Louis’s itemized deductions included state income taxes paid of $3,830.

Louis receives a tax benefit for least of the following

Refund amount $1260 or

Excess of itemized deduction above the standard deduction ($8230-$6350 = $1880)

Hence Louis must include entire refund $1260