Lucia (40) is single. Her 2022 federal itemized deductions totaled $17,400, of which she claimed $1,200 of state income taxes paid in 2022. She filed her tax return on April 14, 2023, and on May 1, 2023, she received a $1,200 state income tax refund. How much of her 2022 state income tax refund is taxable on her 2023 federal return?

Question

$0
$500
$1,200
$2,000

Answer 1

To determine how much of Lucia's state income tax refund is taxable on her 2023 federal return, we must consider the tax benefit rule. This rule states that a taxpayer must include in income any refund of state or local taxes to the extent that the deduction of those taxes provided a tax benefit in the prior year.

1. Lucia claimed $1,200 in state income taxes as part of her itemized deductions in 2022.
2. Her total itemized deductions were $17,400, meaning that if she had not claimed the state income tax deduction, her itemized deductions would not have been lower than the standard deduction for a single filer in 2022, which is $12,950.
3. Since her itemized deductions exceeded the standard deduction, she received a tax benefit from her state tax deduction.
4. Because she received a state tax refund of $1,200, which was the exact amount deducted, the entire refund is potentially taxable.

As a result, the entire $1,200 state income tax refund is taxable on her 2023 federal return.

Thus, the answer is:

$1,200

Answer 2

Leon was reimbursed in 2023 by his insurance company for a medical expense that he had previously deducted on his 2022 Schedule A (Form 1040), Itemized Deductions. What is the tax treatment of the recovered medical expense, if any?
The amount recovered is not taxable and should not be included on the 2023 return.
The amount recovered should be deducted on Schedule A (Form 1040), Itemized Deductions, as a medical expense again in 2023.
The recovery is includable in income in the year received up to the amount by which the deduction or credit claimed reduced taxes in the prior year.
The 2022 return must be amended to remove the medical expense that was recovered.

Answer 3

When a taxpayer recovers an expense that was previously deducted, the tax treatment depends on whether the deduction provided a tax benefit in the prior year. In Leon's case, he was reimbursed for a medical expense that he had deducted on his 2022 Schedule A (Form 1040).

According to the tax benefit rule, if the deduction for the medical expense provided a benefit in terms of reducing taxes in the previous year, then the recovery should be included in income for the year it is received.

However, Leon's situation includes a specific aspect:

• Since he received a reimbursement for a medical expense that he previously deducted, he must determine whether the deduction he claimed actually reduced his tax liability. If it did, then the reimbursement would be taxable up to the amount of the tax benefit he received from that deduction.

Therefore, the correct tax treatment of the recovered medical expense Leon received from his insurance company in 2023 is:

The recovery is includable in income in the year received up to the amount by which the deduction or credit claimed reduced taxes in the prior year.

So, the answer to the question is: The recovery is includable in income in the year received up to the amount by which the deduction or credit claimed reduced taxes in the prior year.

Answer 4

In 2023, Zoey incurred $2,500 in unreimbursed employee business expenses (none of the expenses are impairment-related). Her adjusted gross income was $50,000, and she had no other miscellaneous deductions. What amount is she able to deduct on her federal return as an itemized deduction?
$0
$250
$1,000
$2,500

Answer 5

For tax years 2018 through 2025, the Tax Cuts and Jobs Act suspended the deduction for unreimbursed employee business expenses for most employees who take the standard deduction. This means that employees cannot deduct these expenses on their federal tax returns during this period.

In Zoey's case, since she incurred $2,500 in unreimbursed employee business expenses and she does not qualify for any exceptions (such as being a qualified performing artist, a fee-basis state or local government official, or having expenses related to a disabled employee), she would not be able to deduct these expenses on her federal return.

Therefore, the amount she is able to deduct on her federal return as an itemized deduction is:

$0.

Answer 6

Ross is single. He purchased a new main home in March of 2017 for $900,000. Ross will be itemizing his deductions. On what portion of the acquisition debt will interest be deductible on his 2023 tax return?
$375,000
$500,000
$750,000
$900,000

Answer 7

As of the Tax Cuts and Jobs Act (TCJA) effects starting in 2018, the deduction for mortgage interest is limited to the first $750,000 of acquisition debt for mortgages taken out after December 15, 2017. Since Ross purchased his home in March of 2017, his loan qualifies under the previous limit of $1,000,000 for acquisition debt.

Here’s how it breaks down:

• Ross purchased his home for $900,000 in 2017.
• The acquisition debt refers to the total principal of the mortgage taken to buy the home.
• Since the mortgage was taken out before the TCJA changes that lowered the deductible limit, he is still entitled to the interest deduction on the entire amount of the mortgage as long as it does not exceed the acquisition debt limit in effect when the mortgage was taken out, which is $1,000,000 for homes purchased before December 15, 2017.

Given all this, since Ross’s acquisition debt is $900,000, he can deduct the interest on the full amount of that debt.

Therefore, the amount of acquisition debt on which interest will be deductible on his 2023 tax return is:

$900,000.

Answer 8

Chance won $1,000 at Lucky Casino and $1,350 at Riverboat Casino. His losses for the year at Lucky Casino were $2,000 and his losses at Riverboat Casino were $800. He also spent $100 for lottery tickets without winning anything. Assuming Chance has all required substantiation, what amount of gambling losses can he deduct on his federal return as an itemized deduction?
$0
$2,350
$2,800
$2,900

Answer 9

When it comes to reporting gambling winnings and losses on a federal tax return, the IRS allows taxpayers to deduct gambling losses, but only up to the amount of their gambling winnings.

In Chance's case:

1. Gambling winnings:

   • From Lucky Casino: $1,000
   • From Riverboat Casino: $1,350
   • Total winnings: \( $1,000 + $1,350 = $2,350 \)

2. Gambling losses:

   • Losses at Lucky Casino: $2,000
   • Losses at Riverboat Casino: $800
   • Total losses: \( $2,000 + $800 = $2,800 \)

3. Deduction limit:

   • Chance can only deduct his gambling losses up to the amount of his gambling winnings. His total winnings are $2,350, so that is the maximum amount he can deduct as gambling losses, even though his total losses are $2,800.

Thus, on his federal return as an itemized deduction, Chance can deduct:

$2,350.

Answer 10

Which of the following expenses can be deducted on Schedule A (Form 1040), Itemized Deductions, line 16, as an Other Itemized Deduction?
Impairment-related work expenses of a disabled person.
Tax return preparation fee.
Unreimbursed cleaning of a nurse's uniform.
Unreimbursed subscription to a trade publication related to the taxpayer's work.

Answer 11

To determine which expenses can be deducted on Schedule A (Form 1040), line 16 (Other Itemized Deductions), we need to look at the types of deductions eligible under the current tax law.

As of the Tax Cuts and Jobs Act (TCJA), many miscellaneous itemized deductions that were previously allowed are no longer deductible. However, impairment-related work expenses of a disabled person can still be deductible under certain conditions.

Let's examine each option:

1. Impairment-related work expenses of a disabled person:

   • This expense is deductible as it is allowable under IRS rules, even as of the TCJA.

2. Tax return preparation fee:

   • This expense is also not deductible under the TCJA.

3. Unreimbursed cleaning of a nurse's uniform:

   • This expense is not deductible under the TCJA.

4. Unreimbursed subscription to a trade publication related to the taxpayer's work:

   • Like the cleaning expenses, this is also not deductible under the TCJA.

Given this analysis, the only expense that can be deducted on Schedule A (Form 1040), line 16, as an Other Itemized Deduction is:

Impairment-related work expenses of a disabled person.