I received a Certificate for Income Tax Adjustment. Can I file an amendment to avoid the 2% limit?

[tocharity]

If I use the misc. deduction method for the amount overpaid by the Dept. of Def. the amount must exceed 2% of AGI which it doesn't., so I will receive nothing.  Why can I not just file an amendment?

[DianeW · Accepted solution]

If you included income in your tax return in a prior year and then had to repay that income in any future year the law is clear on how you can take credit for that on your return. An amendment is not one of the ways you are allowed to do it. It doesn't seem fair because it isn't unless the repayment is greater than $3,000.

Repayments can be included in the current year tax return as a deduction if they were reported as income in a prior year and then repaid in the current year.  Do not change or amend the prior year return. The instructions below assum the repayment was under $3,000 based on your questions.

• IRS Publication 525-Taxable & Nontaxable Income (see pages 33-34)

Since your repayment was below $3,000, the correct way to report it in 2017, is a deduction on itemized deductions for your federal return.

If the repayment is $3,000 or less.  If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 23. 

• Select Federal  - Deductions & credits - Other deductions and credits - Other deductible expense
  
• Continue until you can answer "yes" to Repayments of $3,000 or less (previously included in income)
  
• This will be recorded as a miscellaneous expense, line 23 Schedule A and allowed subject to the amount that is in excess of 2% of your AGI, then added to your other itemized deductions.