Here's the issue in my mind, using illustrative #s:
2016 VA tax refund received in 2017: $10,000 (taxable on 2017 return)
2016 MD tax owed in 2017: $4,000 (deductible on 2017 return)
2017 property taxes: $20,000 (no cap on SALT + property tax)
Net amount of $6,000 carried forward and included in 2017 AGI
2017 VA tax refund received in 2018: $12,000 (taxable on 2018 return)
2017 MD tax owed in 2018: $9,000
2018 property taxes: $20,000 ($10,000 cap on SALT + property tax)
All $12,000 taxable in 2018, none of $9,000 tax owed in 2018 for 2017 return deductible, due to $10,000 SALT cap taken up by property tax. In past, the $9,000 would have been effectively netted from the $12,000 as a deduction.
Seems like the $9,000 should be netted from the $12,000, but doesn't seem like the IRS agrees, at least based on any guidance I have read.
