In December 2016,Todd,a cash basis taxpayer,paid $1,200 of fire insurance premiums for the calendar year 2017 on a building he held for rental income.Todd deducted the $1,200 of insurance premiums on his 2016 tax return.He had $150,000 of taxable income that year.On June 30,2017,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, if a taxpayer receives a refund on a previously claimed deduction, the taxpayer must include that refund as income in the year of receipt to the extent that the deduction resulted in a tax benefit. In this case, Todd deducted $1,200 in 2016, which reduced his taxable income by that amount. Therefore, he must include the $500 refund in his 2017 gross income because it resulted from a previously claimed deduction that reduced his taxable income, as required by the tax benefit rule.

In December 2016,Todd,a Cash Basis Taxpayer,paid $1,200 of Fire Insurance