When you enter in the refund in TurboTax, it will ask you some questions regarding the treatment of taxes and deductions on your prior year return. If you worked through that section and TurboTax says the refund or part of it is taxable, then it will be. You need to understand that you deducted the amount of the refund last year, so you are simply adding the deduction back this year, since the amount deducted was refunded. So you aren't paying tax on the refund, just shifting the tax you should have paid on that portion of your income from last year to this year.
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