Question

Taxpayer Y paid local real property taxes of $4,500 and state income tax of $5,500 in 2018. Y claimed a total of $14,000 in itemized deductions on Y's 2018 federal income tax return. In 2019, Y received a $1,500 state income tax refund due to Y's overpayment of state income taxes in 2018. The standard deduction in 2018 was $12,000 How much of the state income tax refund will need to be included in Y's gross income in 2019?

Answer 1

Below is the amount taxable:

Particulars	Amount
Total itemized deductions	$      14,000
Less: standard deduction applicable	$    (12,000)
Tax benefit taken (a)	$        2,000
Tax refund (b)	$        1,500
Taxable refund Lesser of (a) and (b)	$        1,500

Amount included in 2019 gross income is $1,500.

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