TurboTax appears to be calculating correctly. This all stems from Treasury Decision 9864 and relates to IRS Notice 2019-12. This Treasury Decision requires taxpayers to reduce the charitable donations on a federal itemized return by an amount equal to a dollar for dollar state tax credit for charitable donations.
Subsequently the notice states that taxpayers who after decreasing the amount of federal charitable contributions by the state tax credit amount received or expected to be received, can under safe harbor rules take the excess contribution as state taxes paid deduction.
Therefore taxpayers who go back to their federal itemized deductions and reduce the charitable deduction and then add the deduction back to AZ state tax estimates paid in the federal interview must put that amount in the AZ "State Income Tax Adjustment" box. This is done because you cannot get a deduction for an amount already taken as a credit on your AZ return.
Once the adjustment is entered in the AZ adjustment box, the page two lines on the worksheet are used to account for the state and local tax deduction limitation (10,000) on the federal return.
Bottom line is if an AZ taxpayer has itemized deductions on their federal return, has donated to a charity and received an AZ tax credit for that donation, then the amount of the credit should go into the AZ State Income Tax adjustment box.
The exception is if the taxpayer reduced the federal charitable donations by the state tax credit amount on the federal return, but the taxpayer did not take the state income taxes paid deduction under safe harbor rules, then no amount needs to go in the AZ adjustment box because a deduction was not taken.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
