Calvin miscalculated his income in 2015 and overpaid his state income tax by $10,000. In 2016, he amended his 2015 state income tax return and received a $10,000 refund and $900 interest. Calvin itemized his deductions in 2015, deducting $12,000 in state income tax and $30,000 total itemized deductions. As a result of the amended return in 2016, Calvin must recognize $10,900 of gross income.

Question

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Since Calvin received both a refund and interest, he must recognize the interest as income in the year he received it. The refund itself is not taxable since he had already paid tax on the overpayment in the prior year. The $10,000 refund cancels out the $10,000 overpayment he made in 2015, and the $900 interest is included as income in 2016. Therefore, Calvin must recognize $10,900 of gross income in 2016 as a result of the amended return.

Calvin Miscalculated His Income in 2015 and Overpaid His State