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After you file

The general rule is that refunds of prior year state and local income taxes are taxable income in the year received, only if you itemized deductions in the prior year to which the refund relates. In your case, the refund should be taxable income in 2017, if you itemized deductions on the tax return that generated the refund.

Note: If North Carolina issued your refund in the last few days of 2016 and you received it in January only because of mail processing or bank holidays, the state is going to consider the refund as issued in 2016 and will send you a 2016 Form 1099-G. If you receive that form, it would be best to include the income as if it had been received in 2016, to avoid questions from the IRS when they match 1099s to tax returns.

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