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How is State and local income tax refund worksheet - Par IiI line 7(b)(1) - "Recover exclusion - Re figure state and local tax deduction is calculated? Can't recalculate

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Level 1

Itemized deduction was limited in previous year. When I recalculate previous years itemized deduction by reducing the state tax payment by the refund amount - increase in tax liability is not same as amount taxable  on state tax recover worksheet by proseries in current year. The entire refund is calculated as taxable.

Not sure how  the number in part III line 7 (b) 1 (A) Re-figured state and local income tax deduction is calculated, and as a result recover exclusion is calculated as "0"

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Level 15

" increase in tax liability is not same as amount taxable  on state tax recover worksheet by proseries in current year"

It won't be. If the recalculated tax is higher, that means there was a tax benefit was received by deducting the samount of state tax that was refunded. ergo, the refund is taxable.

A deduction does not give rise to an equal ampount of tax savins. A refund of a deducted amount does not increase tax by the amount of the refund. Marginal tax brackets at work.


ex-AllStar

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Highlighted
Level 15

" increase in tax liability is not same as amount taxable  on state tax recover worksheet by proseries in current year"

It won't be. If the recalculated tax is higher, that means there was a tax benefit was received by deducting the samount of state tax that was refunded. ergo, the refund is taxable.

A deduction does not give rise to an equal ampount of tax savins. A refund of a deducted amount does not increase tax by the amount of the refund. Marginal tax brackets at work.


ex-AllStar

View solution in original post

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