If the IRS has notified you of the change and issued a letter of adjustments, you may not need to do anything. You would only need to reply to the notice if you disagree with the findings from the IRS. You should follow the instructions as provided on your letter and take action if instructed on that letter.
In general, your state refund will either be fully taxable or even partially taxable depending upon how much the deduction affected your refund or tax liability.
To determine how much is taxable, all 3 of the following must be true:
- You itemized deductions last year
- You claimed state and local income taxes
- Claiming the deduction helped you increase your federal refund or lower your tax bill
State tax refunds taxation
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