Question

State Tax Refund Not Taxable in 2020 but Taxable in 2019

Forum|Forum|5 years ago
February 24, 2021
1 reply
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On my 2020 taxes, my 2019 state tax refund of $2,614 (received in 2020) is not considered taxable by TurboTax. I believe this is because I itemized my deductions and reached the $10,000 limit on state and local tax deductions entirely through local property taxes, which were $14,000 or so. So this seems correct. However, I looked back at my 2019 taxes and noticed that TurboTax identified my state tax refund of $2,441 to be TAXABLE in spite of the fact that the $10,000 limit was in place in 2019 and my property taxes were in the $13,000 range. Did TurboTax miss this logic in the 2019 software?

J

JohnW152

There was no known issue with the software. What's happening is that, when you deduct state and local income taxes one year, you'll need to pay taxes on the state and local tax refund the next year.

You should check your prior year returns to see if this is what's happening.

Please see the TurboTax article Are State Tax Refunds Taxable? for information.

M

mvswopeAuthor

Thanks but I still think there was an issue. Since there is now a $10,000 deduction limit on state, local, property taxes combined, my state tax refund should not be considered taxable, since I did not actually deduct my state taxes in 2018 or 2019. The $10,000 limit was reached by property taxes alone, so the state taxes were not actually deducted. Turbo tax didn't seem to recognize this fact in 2018 and 2019 (but DID recognize it in 2020, which prompted me to look at my old returns). As a result, I think I need to file an amended return for 2018 and 2019 reflecting that the state tax refund is NOT taxable.

ReneeM7122

Correct, if you were erroneously taxed on your state refund, then you can amend your tax returns. Here is a link that explains how to amend your state tax return in TurboTax. Here is a link about how to contact your state Department of Revenue.

@mvswope