Sam, a single individual, took an itemized deduction of $5,500 for state income tax paid in 2019.His total itemized deductions in 2019 were $18,000 and did not include any other state or local taxes.In 2020, he received a $900 refund of his 2019 state income tax.Sam must include the $900 refund in his 2020 Federal gross income in accordance with the tax benefit rule.

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Under the tax benefit rule, if a taxpayer claimed a deduction for state or local taxes in a previous year and receives a refund of those taxes in a subsequent year, the taxpayer must include the refunded amount in their gross income for the year in which the refund is received. Therefore, Sam must include the $900 refund in his 2020 Federal gross income.

Sam, a Single Individual, Took an Itemized Deduction of $5,500