Your state tax refund is taxable income on your federal tax return in the year you received the refund, if you itemized your deductions for the year that you claimed the refund.
You are correct that your 2017 state tax refund, which was paid in 2019, is taxable income on your 2019 return because you itemized on your 2017 federal return, even though your 2018 state tax refund is not taxable.
Any refund of a previous deduction is taxable income, also called a “taxable recovery.“ The most common type is a state tax refund, but this can also apply if you receive a refund of mortgage interest, or a refund from a medical provider of a medical expense that you previously deducted.
To enter a taxable recovery, go to the “other uncommon income” section at the bottom of the wages and income page and start that interview, taxable refunds will be one of the choices in that section.
