Let me restate. Client paid a large state estimated income tax payment in error in 2020. I caught error and got the state to issue a refund Also In calendar year 2020. Client can not deduct the large state income tax payment on schedule A due to 10k cap. I expect state to issue a 1099 to pick up refund as taxable page 1 income on the 2020 return. How do I record this refund in Pro connect to avoid a larger income tax bill for the client ?
1. Since the 2020 estimate was refunded in 2020, you would be correct to not claim it as a deduction.
2. Even when a 1099 is issued for a refund, it is our job to compute whether it is taxable or not, There should be a worksheet to use, or just don't enter the 1099 and keep a note that it was not recorded because of the tax benefit rule. 1099's also indicate (or should indicate) the year the refund is issued for. In this case a 2020 1099 for 2020, but there might also be a 2020 1099 for 2019. (way too many 4 digit numbers in a row, but hopefully you get the idea.)
3. Are you using ProSeries or are you using ProConnect Tax (online)?