LO.3 How does the tax benefit rule apply in the following cases? a. In 2010

LO.3 How does the tax benefit rule apply in the following cases?

a. In 2010 the Orange Furniture Store an accrual method taxpayer sold furniture on credit for $1000 to Sammy. The cost of the furniture was $600. In
2011 Orange took a bad debt deduction for the $1000. In 2012 Sammy inherited some money and paid Orange the $1000 he owed. Orange was in the 35%
marginal tax bracket in 2010 the 15% marginal tax bracket in 2011 and the 35% marginal tax bracket in 2012.

b. In 2011 Marvin a cash basis taxpayer took a $2000 itemized deduction for state income taxes paid. This increased his itemized deductions to a total
that was $800 more than the standard deduction. In 2012 Marvin received a $1600 refund when he filed his 2011 state income tax return. Marvin was in the
15% marginal tax bracket in 2011 but was in the 35% marginal tax bracket in 2012.

c. In 2011 Barb a cash basis taxpayer was in an accident and incurred $8000 in medical expenses which she claimed as an itemized deduction for medical
expenses. Because of the 7.5%-of-AGI reduction the expense reduced her taxable income by only $3000. In 2012 Barb successfully sued the person who
caused the physical injury and collected $8000 to reimburse her for the cost of her medical expenses. Barb was in the 15% marginal tax bracket in both
2011 and 2012.