Tax benefit rule definition
/What is the Tax Benefit Rule?
The tax benefit rule states that, if a tax deduction is taken in a prior year and the underlying amount is recovered in a subsequent period, then the underlying amount must be included in gross income in the subsequent period. The rule is intended to keep taxpayers from receiving a double benefit from both the initial tax deduction and the subsequent recovery of this amount.
The rule is promulgated by the Internal Revenue Service.
Example of the Tax Benefit Rule
Mr. Jones recovers a $1,000 loss that he had written off in his previous year’s tax return. The $1,000 must be included in his current year’s reported gross income.