Question

Problem 5-51 (LO 5-1) (Static)

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Louis files as a single taxpayer. In April of this year he received a $900 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 $12,200. (Leave no answer blank. Enter zero if applicable.)

Problem 5-51 Part-a (Static)

  

a. Last year Louis claimed itemized deductions of $12,450. Louis’s itemized deductions included state income taxes paid of $1,750 and no other state or local taxes.

b. Last year Louis had itemized deductions of $10,800 and he chose to claim the standard deduction. Louis’s itemized deductions included state income taxes paid of $1,750 and no other state or local taxes.

c. Last year Louis claimed itemized deductions of $13,640. Louis’s itemized deductions included state income taxes paid of $2,750 and no other state or local taxes.

Answer 1

Ans:

a. Louis received a tax benefit for the lesser of the refund ($900) or the excess of the itemized deductions above the standard deduction (12450-12200) = $ 250. Hence, Louis must include $ 250 of the $ 900 refund in gross income.

b. Because he didn’t itemize his deductions, Louis received no tax benefit from the $900 tax overpayment.Hence, none of the refund is included in his gross income.

c. Louis received a tax benefit for the lesser of the refund $ 900 or the excess of the itemized deductions above the standard deduction (13640 − 12200) = $ 1440. Hence, Louis must include the entire $900 refund in gross income.