CPA · Question 24 · Area IV: Individual Taxation

In Year 1, a taxpayer paid $4,000 in state income taxes and deducted them as an itemized deduction. The taxpayer's total itemized deductions exceeded the standard deduction by $1,000. In Year 2, the taxpayer received a $1,500 refund of the state income taxes paid in Year 1. How much of the refund is taxable in Year 2?