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Dolly is a cash basis taxpayer. In 2018, she filed her 2017 South Carolina income tax...

Dolly is a cash basis taxpayer. In 2018, she filed her 2017 South Carolina income tax return and received a $2,200 refund. Dolly took the standard deduction on her 2017 Federal income tax return, but will itemize her deductions in 2018. Molly, a cash basis taxpayer, also filed her 2017 South Carolina income tax return in 2018 and received a $600 refund. Molly had $12,000 in itemized deductions on her 2017 Federal income tax return, but will take the standard deduction in 2018. How does the tax benefit rule apply to Dolly’s and Molly’s situations? Explain.

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The tax benefit rule applies to Molly and Dolly’s situations because it states that no income is recognized upon the recovery of a deduction, or the portion of a deduction, that did not yield a tax benefit in the year it was taken.

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