Taxable State Refund

[gman]

Taxpayer itemized but did not take his state income tax on Sch A. Must he report his refund on line 10 form 1040?

[Larmil]

Taxpayer itemized but did not take his state income tax on Sch A. Must he report his refund on line 10 form 1040?

No. That is sometimes the reason for choosing the sales tax deduction.

[Peachie]

Did the taxpayer

Taxpayer itemized but did not take his state income tax on Sch A. Must he report his refund on line 10 form 1040?

itemize the year before or are you saying he's itemizing now? If he itemized in 2010 and received a state tax refund for 2009 in 2010, the answer is yes, it should go on line 10 of the 1040-page 1. I hope I don't misunderstand your question as Lamil and I are not in agreement ).
Ok, I reread the answer and the question and agree with Lamil. However, perhaps he should see what effect including the state tax on schedule A would have had on his refund or taxes due for 2009. It would have certainly increased his deductions for the schedule A resulting in less tax owed. I know, I just confused the situation. I'm sorry. I mean well.

Peachie

[Gary2]

itemize the year before or are you saying he's itemizing now? If he itemized in 2010 and received a state tax refund for 2009 in 2010, the answer is yes, it should go on line 10 of the 1040-page 1. I hope I don't misunderstand your question as Lamil and I are not in agreement ).

Just to be precise: If he itemized on his 2009 federal tax return, and that included state income tax paid in 2009 (via withholding or estimated taxes) for the 2009 state tax year, and then during 2010 receives a refund from the state on his 2009 taxes, he must include some or all of that as income on his 2010 federal tax return.

He only has to include the amount that increased his benefit. If, for example, on his 2009 federal return he had a choice between deducting $5000 of state income tax or $4500 of state sales tax, and chose the former, and then received a $1000 refund in 2010, then only $500 would be added to income. And just to make things complicated, remember that 2009 also allowed standard deduction plus real estate taxes. And if you want it more complicated, consider a tax payer whose itemized deductions were limited in 2009 due to high AGI. And if you really, really want it complicated, suppose they filed MFJ in 2009 and MFS or single in 2010.

[Peachie]

Ok Gary, here we go.

Just to be precise: If he itemized on his 2009 federal tax return, and that included state income tax paid in 2009 (via withholding or estimated taxes) for the 2009 state tax year, and then during 2010 receives a refund from the state on his 2009 taxes, he must include some or all of that as income on his 2010 federal tax return.

He only has to include the amount that increased his benefit. If, for example, on his 2009 federal return he had a choice between deducting $5000 of state income tax or $4500 of state sales tax, and chose the former, and then received a $1000 refund in 2010, then only $500 would be added to income. And just to make things complicated, remember that 2009 also allowed standard deduction plus real estate taxes. And if you want it more complicated, consider a tax payer whose itemized deductions were limited in 2009 due to high AGI. And if you really, really want it complicated, suppose they filed MFJ in 2009 and MFS or single in 2010.

Itemizing is the only point. If he used the standard deduction-he wouldn't have to claim any state tax refund as income on 2010 return. If the filing status changed to MFS-I would split the taxable portion--whatever it is. It's really not complicated. The only point I was trying to make (and in the end I did agree with Lamil's comment), is it only goes on the 1040 page 1 if he itemized and received a benefit the year before AND if he left off the tax withholding on his Schedule A, he might consider an amended return to nclude.

Peachie