Question

Harvey itemized deductions on his 2018 income tax return and was able to deduct all state and local income taxes paid. Harvey plans to itemize deductions again in 2019 and the following information is available regarding state and local income taxes:

Taxes withheld in 2019	$12,500
Refund received in 2019 for 2018 tax	$500
Assessment paid in 2019 for 2017 tax	$300

Assuming he deducts state and local income taxes, the above information should be reported by Harvey in his 2019 tax return as:

a.Itemized deduction for state and local income taxes of $12,800

b.Itemized deduction for state and local income taxes of $12,300

c.Itemized deduction for state and local income taxes of $10,000 and income from state and local tax refund of $500

d.Itemized deduction for state and local income taxes of $12,500, and income from state and local tax refund of $200

e.None of these choices are correct.

Answer 1

Choice (c) is correct.(Assumed that Harvey is married and filing jointly)

Explanation:-i) itemised deduction in respect of state and local income taxes limited to $10000 (plese see 2019 instructions for Schedule A,Line 5)

ii) In respect of refund of state and local taxes $500 can be treated as income (please refer Schedule 1 ,Form1040-Additional Income and Adjustment to Income)

Note: if filing seperately ,the correct choice would be (e) as the itemised deduction in respect of local and state income tax is limited to$5000