Margarita,a single individual,has $2,000 in state taxes withheld from her salary in 2015.Her total itemized deductions are $7,500.She claims the $2,000 as an itemized deduction on her 2015 tax return.In 2016,she receives a state income tax refund of $400.Under the tax benefit rule she has to report income in 2016 of

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Under the tax benefit rule, if a taxpayer receives a refund of state or local taxes that they previously claimed as an itemized deduction in a prior year, they must include the refund as income to the extent that the deduction provided a tax benefit. In this case, Margarita claimed $2,000 in state taxes as an itemized deduction, so she received a tax benefit of $2,000. When she receives a $400 refund in 2016, she must report it as income because it represents a recovery of a portion of the tax benefit she received in 2015. The remaining $1,600 of tax benefit is not affected.

Margarita,a Single Individual,has $2,000 in State Taxes Withheld from Her