Question
Tonya is a cash basis taxpayer. In 2020, she paid state income taxes of $8,000 and property taxes of $5,500. In early 2021, she filed
- Tonya is a cash basis taxpayer. In 2020, she paid state income taxes of $8,000 and property taxes of $5,500. In early 2021, she filed her 2020 state income tax return and received a $900 refund.
| a. | If Tonya itemized her deductions in 2020 on her Federal income tax return, she should amend her 2020 return and reduce her itemized deductions by $900. |
| b. | If Tonya itemized her deductions in 2020 on her Federal income tax return, the refund will not affect her 2021 tax return. |
| c. | If Tonya itemized her deductions in 2020 on her Federal income tax return, she must amend her 2020 Federal income tax return and use the standard deduction. |
| d. | If Tonya itemized her deductions in 2020 on her Federal income tax return and her itemized deductions exceeded the standard deduction by more than $900, she must recognize $900 income in 2021 under the tax benefit rule.
I chose D, but it was wrong. I would like to know what and why is it the correct answer. Thanks in advance! |
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