In December 2010,Todd,a cash basis taxpayer,paid $1,200 fire insurance for the calendar year 2011 on a building he held for rental income.Todd deducted the $1,200 insurance premiums on his 2010 tax return.He had $150,000 of taxable income that year.On June 30,2011,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, any refund or reimbursement of an expense previously claimed as a deduction must be included in gross income in the year of recovery. Since Todd claimed the full $1,200 insurance premium as a deduction in 2010, he must include the $500 refund in his 2011 gross income. Option C is correct, and the other choices are incorrect because Todd cannot amend his 2010 return once the year has passed, and he cannot add the refund to the sales proceeds of the building since it is a separate item. The claim of right doctrine applies to situations where there is uncertainty about the right to income, which does not apply in this scenario.

In December 2010,Todd,a Cash Basis Taxpayer,paid $1,200 Fire Insurance for the Calendar