If you repaid amounts reported as income in the prior year
-
----- if the amount is $3,000 or less, it is a
miscellaneous itemized deduction subject to the 2% limitation.(not allowed in 2018)
----- if the amount is more than $3,000, it is
a miscellaneous itemized deduction which is not subject to the 2% limitation.
If the amount was received under a "claim
of right" (you had unrestricted use of the funds but later found out you
didn't), you have one more choice: if the amount is more than $3,000, you
can choose instead to claim a credit for the additional tax incurred by
reporting the repaid amount in income. See IRS Publication 525 for an
explanation of that method. It is available at: http://www.irs.gov/publications/p525/ar02.html#d0e9279
Look under deductions and credits, then other
deductible expenses, then less common expenses if the amount is under $3,000.
Turbotax on-line does not support the
"claim of right" computation. Turbotax desktop, in the forms
mode, permits the credit to be entered in the "smart worksheet" above
line 72, but you still would need to compute it manually.
Repayment over $3,000.
If the amount you repaid was more than $3,000,
you can recover the tax you originally paid using one of two methods. You can
do it as a deduction on schedule A or a tax credit on line 73 of the 1040 form if when you included the income
in a previous year, it appeared that you had an unrestricted right to it.
Figure
your tax under both methods and compare the results. Use the method (deduction
or credit) that results in less tax.
Method
1.
Claiming a deduction for the repaid amount. You deduct
it as a miscellaneous itemized deduction on Schedule A line 28.
This
is the flow in TurboTax:
Federal taxes > Deductions & credits > I'll choose what
I work on > Other deductions and credits > Other deductible
expense>Go thru to third screen> answer YES to "Did you have any
other deductions that are not subject to the 2% limitation?"
Enter the amount you repaid under, "Claim of Right Repayment (Only if
over $3,000).
Method
2.
Figure your
tax claiming a credit for the repaid amount. Follow these
steps.
1.
Figure your tax without deducting the repaid amount.
2.
Refigure your tax from the earlier year without including the income that
you had to be repaid.
3.
Subtract the tax calculated in (2) from the tax shown on your return for the
earlier year. This is the credit.
This
is the flow in TurboTax (This can only be done in the Forms mode of the Desktop
version of TurboTax)
Go
to FORMS (top right of main screen) > Form 1040 > Scroll below line 72 to
"Other Payments and Credits Smart worksheet"
Please enter the credit on line D.
This credit should show up on Form 1040 line 73
I've included a link to the IRS website for your reference: https://www.irs.gov/pub/irs-pdf/p525.pdf
