Phyllis, a calendar year cash basis taxpayer who itemized deductions totaling $20,000, overpaid her 2016 state income tax and is entitled to a refund of $400 in 2017. Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2017. She is required to recognize that amount as income in 2017.

Question

Quizplus · Accepted Answer

Since Phyllis itemized her deductions in 2016 and received a tax benefit from the state tax deduction, the $400 refund applied to her 2017 taxes must be recognized as income in 2017 under the tax benefit rule.

Phyllis, a Calendar Year Cash Basis Taxpayer Who Itemized Deductions