When is it advisable to recalculate my 2016 return as part of doing my 2017 taxes, when I DID pay alt min tax in 2016?

[coachriley1]

@TurboTaxAnita when will TT add this feature?  This thread shows activity for over two years, with many new comments.  Or is there tax prep software that does this calculation for us that you can recommend?

[gregbybee]

Agreed, TurboTax should do this calculation for us - that is the whole point of the software. Plus, they have all the data stored from last year.

[ak6]

I ran into similar issue.
@TurboTaxAnita Please add this feature.

[bradburke]

This explanation is terrible and I just realized TT caused me to overpay my 2017 taxes. Here's the simple question you need to answer - Would your total taxes paid in 2017 have been higher had your state income tax deduction (1040 Schedule A line 5) been lower by the amount of your state refund? If you are in AMT territory by a wide margin (New Jersey residents), the answer is "probably not" and your refund is likely NOT taxable.    

Want a quick sanity check? Take the amount of your refund times 33% and compare that to your AMT amount (1040 line 45). If the refund times 33% is less than the AMT amount, your refund is likely NOT taxable. Warning, this is just for a quick approximation.

TT's execution (not doing a complicated calculation that likely reduces tax liability, and then making it VERY EASY for users to opt out of the calculation) is borderline unethical.

[bekah_p]

It's crazy that TT does not provide this functionality.  One more reason to find another way of doing my taxes next year.  

[geert-h-aerts]

Why isn't TurboTax doing this calculation?

[liner5]

+1 for Turbo Tax to do this calculation.  TT walks me through it, but I've been using TT for the past 5 years, and it has all my numbers.

[asdfg1234]

Can someone confirm if @bradburke suggestion is correct? Surprisingly, that is the most intuitive explanation I have ever heard.

I obfuscated the last digit of my numbers due to privacy concerns.

Here are step by step instructions I followed to file 2018 tax return (follow them at your own risk because taxes are not my primary occupation. Please correct me if I have made incorrect assumptions):

1. I reopened my 2017 return with the old "Turbo Tax 2017" desktop application
2. Make a note of my 2017 "Federal Tax Due" that was $14,97X and "CA Refund" that was $15,62X.
3. Make sure that "CA Refund" of $15,62X matches with the number on 1099-G form that State Tax agency sent this year.
3. Go to "FEDERAL TAXES" -> "Wages & Income"-> "I'll chose what I work on"
4. Under "Wages and Salaries" click "Update". Then click "Edit" on one of your W-2 forms.
5. Under "State and Local Wage Information" there is a box "17 State Income Tax" that in my case says $54,21X. I subtract CA refund of $15,62X from that number and get $38,59X and update box 17 with it.
6. Click "Continue".
7. Now "CA Tax Due" should go to $0, because it simulates the condition as if you paid the exact amount of taxes to your local tax agency (in other words state agency would not send you 1099-G form).
8. Observe how "Federal Tax Due" changed. There are only two options.
9. If "Federal Tax Due" still stays the same then you did not receive any benefit at all in 2017 for overpaying your State Taxes. So, you don't have to claim any of 2017 state refund on your 2018 forms as income. Otherwise, If "Federal Tax Due" went up, then back in 2017 you benefited by overpaying State Taxes. Now the task is to find out what portion of state refund helped to offset federal taxes. Here is how to find that out:
10. Click "Back".
11. Restore the original number in box 17 (In my case it was $54,21X). Now, instead of subtracting $15,62X try to subtract a smaller number, like $781X.
12. Did "Federal Tax Due" increase? If yes, then try to subtract even smaller number.
13. Did "Federal Tax Due" stayed the same? If yes, then try to subtract a greater number.
14. Go back to step #10 and repeat until you have found the "magical number" at which "Federal Tax Due" *starts* to increase. With binary search algorithm you can find this number in no time.

With the steps described above the lowest possible number I could stick in Box 17 without causing "Federal Tax Due" to increase was $45,91X. Which means that $830X of my state refund did not help me to offset federal tax liability back in 2017. So I can subtract $830X from my 2018 1099-G form and not claim that as income.

My only question is - when doing 2018 taxes, can I manually update 1099G form not to have $15,62X but rather $732X? Does IRS expect that I show a proof on how I discovered this number?

[asdfg1234]

It seems that official TurboTax guide to recalculate the benefit received in 2017 due to state refund works on the same principles as I described in above comment. Except you have to guess the "magical number"(in this case reduction amount)  not by adjusting W-2 box 17, but instead switch TurboTax2017 in "Form mode". And then do similar binary search on "Tax Payment Worksheet" line 18(a, b or c).

[LaJolla]

I got two state refunds in 2018 one for tax year 2017 and a second one for tax year 2016 which I received after submitting a 1040X for tax year 2016. When I went through the steps to recalculate my 2017 via using the TAX PAYMENT WORKSHEET  it appears my 2017 state refund was not taxable. However, it is unclear if the second state refund I got in 2018 for tax year 2016 was taxable. To further complicate matters, in error I already included the small -31- second state refund on my 2017 taxes along with the first refund I got in 2017 because they both applied to tax year 2016. I now know that was incorrect but it is not worth it to resubmit a 1040x for tax year 2017. Anyway when recalculating my prior taxes based due to the state refund, TT asks if I had any other state refunds for prior years. I only included the second refund I got in 2018 for tax year 2016, but I was uncertain how to determine if this amount was taxable. I attempted to go through the same steps I did previously for my 2017 taxes, using the form method for my 2016 taxes, but I was certain if I did this would I then have to input the new calculations from my 2016 taxes on my 2017 work sheet prior to re-calculating my 2017 taxes.
Therefore, I just ended up doing tax recalculations for tax year 2017 using my state refund that I got in 2018 for tax year 2017 and entered the 31 as the refund I got in 2018 for tax year 2016. When I entered the information into the 2018 TT program TT told me I paid too much AMT in 2017 and I could deduct a portion of that on this years taxes,  but then asked me if the 31 was taxable which I did not know and I just decided to leave it as taxable. What should I have done?

[elliottwolf]

@Anita01, I received a reasonably large state tax refund in 2018 on 2017 taxes. I paid AMT for the 2017 tax year because I lost part of my SALT deduction as described above.  

It is now 2019 and I am working on my 2018 taxes.  I made the exact computation discussed above, refiguring my 2017 AMT.  Refiguring increased my Income tax (form 1040, line 44) by ~ $1500 and decreased my AMT (form 1040, Line 45) by ~ $2000. 

Despite the changes in my 2017 AMT establishing that I had lost much of the SALT deduction, Turbotax reports that the 2017 refund (paid in 2018) is taxable.  There is  seemingly no set of numbers that I can put into turbotax that will give any answer other than 100% taxable.  Is there a bug or am I doing something wrong? 

[BH19]

it's very disappointing that TurboTax doesn't do this calcualation.  I paid AMT numerous years and received a state tax refund numerous years, so I think those refunds would've been excluded as income, but I thought TT was handling this calculation for me, so I included all of the refund as income for several years.  Ending up costing me about $3000, and it's past the time limit to file amended return.  Really disappointing TT allows this to happen - I got screwed.