Does anyone understand the following apparent discrepancy between Worksheet 2 of IRS Pub. 525 and the 1040-X which I produced with Turbo Tax? Either Pub. 525 or Turbo Tax are incorrect, or I am using one or both of them incorrectly.
I received an IRS state refund in 2019 as a consequence of an amendment to my 2017 return, which included a Schedule A calculation of the deductible. When I prepared my 2019 return with Turbo Tax Deluxe, I didn’t remember the refund from 2017.
Now I am using the same software to prepare a 1040-X for 2019 to document the receipt of the refund, even though when I manually use Worksheet 2 of 2019 Pub. 525, I conclude that the refund isn’t taxable. In particular, I calculate that Line 8 of the Worksheet in my case is zero, and the Worksheet says: “If the result is zero or less, stop here. The amounts on lines 1 and 2 aren't taxable.” Line 1 contains the value of the refund from 2017. [Emphasis added]
However, the 2019 Turbo Tax amendment, generated in dialog mode, treats the refund as taxable income with the result that I owe over $400 in additional tax.
