In December 2015,Todd,a cash basis taxpayer,paid $1,200 of fire insurance premiums for the calendar year 2016 on a building he held for rental income.Todd deducted the $1,200 of insurance premiums on his 2015 tax return.He had $150,000 of taxable income that year.On June 30,2016,he sold the building and,as a result,received a $500 refund on his fire insurance premiums.As a result of the above:

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According to the tax benefit rule, when a taxpayer deducts an expense in one year and later receives a reimbursement or refund in a subsequent year, the amount received must be included in gross income to the extent that the deduction provided a tax benefit. In this case, Todd deducted the $1,200 insurance premium on his 2015 tax return, which provided him with a tax benefit. When he received the $500 refund in 2016, he must include it in his 2016 gross income. Amending his 2015 return or adding the $500 to his sales proceeds is not appropriate in this scenario.

In December 2015,Todd,a Cash Basis Taxpayer,paid $1,200 of Fire Insurance