85 - amount deducted in the prior year, or (c) the amount...

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Under what circumstances is a state or local income tax refund included in the taxable income of a taxpayer? Answer: If a taxpayer deducted state or local taxes as an itemized deduction in the prior year, the taxpayer must report income in the year in which the refund was received. The taxable amount is the lesser of (a) the amount received, or (b) the
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Unformatted text preview: amount deducted in the prior year, or (c) the amount by which the itemized deductions exceed the standard deduction. If the taxpayer did not itemize deductions in the prior year (i.e., took the standard deduction), no amount of the refund is taxable....
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