Phyllis, a calendar year cash basis taxpayer who itemized deductions, overpaid her 2011 state income tax and is entitled to a refund of $400. Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2012. She is required to recognize that amount as income in 2012.

Question

Quizplus · Accepted Answer

Since Phyllis itemized deductions in 2011 and received a tax benefit from the state tax deduction, the $400 refund applied to her 2012 taxes must be recognized as income in 2012 under the tax benefit rule.

Phyllis, a Calendar Year Cash Basis Taxpayer Who Itemized Deductions