Reference no: EM132658214

Problem - Norma, who is single and uses the cash method of accounting, lives in a state that imposes an income tax. In April 2019, she files her state income tax return for 2018 and pays an additional $1,000 in state income taxes. During 2019, her withholdings for state income tax purposes amount to $7,400, and she pays estimated state income tax of $700. In April 2020, she files her state income tax return for 2019, claiming a refund of $1,800. Norma receives the refund in August 2020. Norma has no other state or local tax expenses.

a. Assuming that Norma itemized deductions in 2019, how much may she claim as a deduction for state income taxes on her Federal return for calendar year 2019 (filed April 2020)?

b. Assuming that Norma itemized deductions in 2019 (which totaled $20,000), how will the refund of $1,800 that she received in 2020 be treated for Federal income tax purposes?

c. Assume that Norma itemized deductions in 2019 (which totaled $20,000) and that she elects to have the $1,800 refund applied toward her 2020 state income tax liability. How will the $1,800 be treated for Federal income tax purposes?

d. Assuming that Norma did not itemize deductions in 2019, how will the refund of $1,800 received in 2020 be treated for Federal income tax purposes?