Exercise 5-26 (LO. 3)

Apply the tax benefit rule to determine the amount of the state income tax refund included in gross income in 2020.

a. Veronica filed as a single taxpayer in 2019. Her AGI was $230,000, and itemized deductions were $42,000. Her local property taxes were $13,000 and her state income taxes were $17,000. In 2020, Veronica received a $2,100 refund of the state income taxes she paid in 2019. The standard deduction for single filers in 2019 was $12,200.

b. Veronica filed as a single taxpayer in 2019. Her AGI was $241,000, and itemized deductions were $44,000. Her local property taxes were $13,900 and her state income taxes were $18,500. In 2020, Veronica received a $5,000 refund of the state income taxes she paid in 2019. The standard deduction for single filers in 2019 was $12,200.