Norma, who is single and uses the cash method of accounting, lives in a state that imposes an income tax. In April 2016, she files her state income tax return for 2015 and pays an additional $1,000 in state income taxes. During 2016, her withholdings for state income tax purposes amount to $7,400, and she pays estimated state income tax of $700. In April 2017, she files her state income tax return for 2016, claiming a refund of $1,800. Norma receives the refund in August 2017.
a. Assuming that Norma itemized deductions in 2016, how much may she claim as a deduction for state income taxes on her Federal return for calendar year 2016 (filed April 2017)?
b. Assuming that Norma itemized deductions in 2016 (which totaled $20,000), how will the refund of $1,800 that she received in 2017 be treated for Federal income tax purposes?
c. Assume that Norma itemized deductions in 2016 (which totaled $20,000) and that she elects to have the $1,800 refund applied toward her 2017 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 2016, how will the refund of $1,800 received in 2017 be treated for Federal income tax purposes?