If you had to repay an amount that you included
in your income in an earlier year, you may be able to deduct the amount repaid
from your income for the year in which you repaid it under the claim of right
doctrine. If the amount of the repayment exceeds $3,000, you have the
option of claiming a tax credit instead of taking a tax deduction. It's a
somewhat complex calculation for the credit.
Most taxpayers
benefit more from claiming the deduction than the credit. You can claim
the deduction by going to Federal>Deductions & Credits>Other
Deductible Expenses. Proceed through that interview until you reach the
question "Do you have any other deductions that are not subject to the 2%
limitation?" Answer yes and enter the deduction on the screen that
follows.
