Norma, who uses the cash method of accounting, lives in a state that imposes an income tax. In April 2015, she files her state income tax return for 2014 and pays an additional $1,000 in state income taxes. During 2015, her withholdings for state income tax purposes amount to $7,400, and she pays estimated state income tax of $700. In April 2016, she files her state income tax return for 2015, claiming a refund of $1,800. Norma receives the refund in August 2016.
a. Assuming that Norma itemized deductions in 2015, how much may she claim as a deduction for state income taxes on her Federal return for calendar year 2015 (filed April 2016)?
b. Assuming that Norma itemized deductions in 2015, how will the refund of $1,800 that she received in 2016 be treated for Federal income tax purposes?
c. Assume that Norma itemized deductions in 2015 and that she elects to have the $1,800 refund applied toward her 2016 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 2015, how will the refund of $1,800 received in 2016 be treated for Federal income tax purposes?
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