Question

Itemizing for Federal but avoiding to be taxed on state refund next year?

Forum|Forum|4 years ago
April 4, 2022
2 replies
0 views

In California.

My mortgage interest $17,100, property tax $13,600.

The property tax alone passes the State and Local Tax deduction limit of $10,000.

So my itemize deduction is $27,100. $17,100 + $10,000.

Can I claim sales tax deduction (like for $0 since pointless) instead of state and local income tax deduction to avoid needing to pay taxes next year on my state refund?

Or TurboTax smart enough to realize regardless if choosing state income tax or state sales tax, neither option helped me because my property tax alone passes $10,000 so my state refund would be non-taxable anyways?

VolvoGirl

Employee

What's your filing status? Will you still have more deductions than the Standard Deduction?

H

Haze11Author

MFJ, Standard Deduction $25,100.

Would the system automatically know that my property tax alone takes up the $10,000 SALT (State and Local Tax) limit thus no matter using state income or state sales taxes didn't benefit me anyways making my state tax refund non-taxable next year?

M

Mike9241

yes, but it wouldn't matter if you claimed state income tax since none of the refund would be taxable

example paid $20K in state income taxes and got $10K refund

according to IRS PUB 525 worksheet 2a

1) state income tax refund $10K

2) other taxes refund reported on schedule A =0

3) total line 1 and 2 $10K

4a) schedule A line 5d $13.6K + 20K = 33.6K

4b) schedule A line 5e $10K

4c) 5d less 5e = $23.6K

5) is line 3 more than line 4c?

NO - then stop none of refunds on line 1 or 2 are taxable.

H

Haze11Author

It looks like TurboTax is doing some sort of percentage split instead of just taking all $10,000 from my property tax and put the others to 0... should I do something to fix this? @Mike9241

R

RaifH

TurboTax will be smart enough to not make any portion of your tax refund taxable next year.

You will get a 1099-G from your state. When you enter it and indicate that you itemize your deductions, it will ask for Line items off your 2021 Schedule A. When you indicate that the real estate taxes before the limit is applied is in excess of $13,000 (which should be on Schedule A Line 5b), no portion of your income tax refund will be taxable.

That being said, you can also just check the box to use sales tax instead and will get the same result, both on this year's and next year's taxes.