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
$3,860 in state income taxes. During 2016, her withholdings for
state income tax purposes amount to $13,510, and she pays estimated
state income tax of $2,702. In April 2017, she files her state
income tax return for 2016, claiming a refund of $6,948. Norma
receives the refund in August 2017.

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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 $6,948 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 $6,948
refund applied toward her 2017 state income tax liability. How will
the $6,948 be treated for Federal income tax purposes?

d. Assuming that Norma did not itemize
deductions in 2016, how will the refund of $6,948 received in 2017
be treated for Federal income tax purposes?

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