Margarita, a single individual, has $2,000 in state taxes withheld from her salary in 2018. Her total itemized deductions are $13,500. She claims the $2,000 as an itemized deduction on her 2018 tax return. In 2019, she receives a state income tax refund of $400. Under the tax benefit rule she has to report income in 2019 of

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Under the tax benefit rule, if a taxpayer receives a refund of taxes that were previously deducted, then the refund is included in taxable income in the year received. Margarita claimed state taxes withheld of $2,000 as itemized deductions on her 2018 tax return. Since she received a refund of $400 in 2019, she must include it as income on her 2019 tax return. The correct answer is B, which represents the amount of the refund received. Option A is incorrect because the $2,000 was already claimed as a deduction in 2018, and therefore, it does not need to be reported as income in 2019. Option C is incorrect because it does not reflect the actual amount of the refund Margarita received. Option D is incorrect because Margarita did receive income via the refund, which she should report. Option E is incorrect because Margarita does not need to file an amended return, but she does need to report the $400 refund as income on her 2019 tax return.

Margarita, a Single Individual, Has $2,000 in State Taxes Withheld