I paid state estimated taxes (Colorado) in 2nd quarter 2023 due to the sale of a second home to account for the capital gains. In completing my return now, I've realized that I grossly overpaid the state estimated taxes (paid a total of $10k estimated state taxes, overpaying by $6300). I did not pay estimated fed taxes.
When I enter my estimated state tax payments in Turbotax ($10k), it results in a $6300 refund from CO and lowers my federal liability by around $1000. This brings me to the state/local tax maximum deduction of $10k ($5900 of state income taxes withheld + $10k of estimated taxes paid by me = $15900 total)
My question is, will this have repercussions when I do my taxes next year due to the large refund I'm getting from CO? In other words, it lowered my AGI by $4100 this year due to hitting the max (brought me from a $5900 deduction to $10k), but will it now increase my AGI next year by $6300 (the CO refund amount)? I'd appreciate any guidance!
Maybe, if you are itemizing your return, and taking a deduction for your taxes paid, you may have to claim part of the refund as income next year on your return. However, since you are only getting a $6,300 refund and you paid in $15,900, that means you would only need to claim $400 as income on your return for next year. As your tax liability is still $9,600 for the state.
I am assuming you paid local taxes as well. So, if you have a state liability of $9,600 and a local liability of more than $400, you would hit your $10,000 SALT and that would be the correct amount claimed. In that case, you wouldn't have to claim anything on your return next year as you are not getting back in refunds more than you claimed as an itemized deduction.
Basically, if your state and local taxes that you are actually paying in or not getting refunded to you are more than $10,000, then it will have no affect on your 2024 federal taxes.