Suppose my 2023 State Income Tax was $12,000. Due to SALT I can only deduct $10,000 on Federal 1040 Schedule A. In 2023 I donated money to some Georgia Rural hospitals for the amount of $4000. This is just a redirection of state taxes and so I receive a tax credit for the full $4000 on my Georgia state return. Then in 2024 I received a refund of GA taxes for $5000, but recall that $4000 of this was due to those hospital donations I had made earlier. I did NOT include those donations as charitable contributions on my Federal 1040 Schedule A.
My question is why is the full $5000 of the state refund considered when calculating the taxable amount of that refund on my 2024 Federal Return? If I had NOT made those donations, my refund would only be $1000 and that would still leave my "effective" state income tax on Schedule A as $11000, and so still above SALT and hence none of the refund would be taxable. But because it was $5000, it makes my effective state income tax on schedule A $7000 and so I am now being taxed on the $3000 difference between what I deducted in 2023 ($10000 due to SALT) and what the Federal return now considers what I should have deducted?
Am I thinking about this correctly?
Thanks, James
