Norma, who uses the cash method of accounting, lives in a state that imposes an income tax. In April 2013, she files her state income tax return for 2012 and pays an additional $1,000 in state income taxes. During 2013, her withholdings for state income tax purposes amount to $7,400, and she pays estimated state income tax of $700. In April 2014, she files her state income tax return for 2013, claiming a refund of $1,800. Norma receives the refund in August 2014.
a. Assuming that Norma itemized deductions in 2013, how much may she claim as a deduction for state income taxes on her Federal return for calendar year 2013 (filed April 2014)?
b. Assuming that Norma itemized deductions in 2013, how will the refund of $1,800 that she received in 2014 be treated for Federal income tax purposes?
c. Assume that Norma itemized deductions in 2013 and that she elects to have the $1,800 refund applied toward her 2014 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 2013, how will the refund of $1,800 received in 2014 be treated for Federal income tax purposes?