Discussion Question $5-20($LO$.3)$

Dolly is a cash basis taxpayer. In $2023,$ she filed her $2022$ South Carolina income tax return and received a $$2,200$ refund. Dolly took the standard deduction on her $2022$ Federal income tax return but will itemize her deductions in $2023.$ Molly, a cash basis taxpayer, also filed her $2022$ South Carolina income tax return in $2023$ and received a $$600$ refund. She deducted no other state or local taxes. Molly had $$16,000$ in itemized deductions on her $2022$ Federal income tax return but will take the standard deduction in $2023.$

Complete the statements below regarding how the tax benefit rule applies to Dolly's and Molly's situations.

Dolly:

Dolly

required to recognize income in $2023$ from the receipt of the state income tax refund of $$2,200.$ The refund reflects her overpayment and the original tax payment

her taxable income because she claimed the standard deduction on her $2022$ tax return. Therefore, the $$2,200$ refund is

$,$

in $2023.$

Molly:

Molly

from the deduction on her $2022$ Federal income tax return. As a result, the $$600$ refund she receives in $2023$ is

$,$

in $2023.$