In Pub 525 under state tax refund, it states that the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you didn't choose to deduct for that year.
The way I read this is since my State and Personal property was limited to $10,000, the $12,000 refund should not be taxable because I was NOT able to deduct all of my state taxes of $132,000.
The fact that TT marks all $12,000 as taxable is a bug. I am being double taxed on at least $2,000 (or not getting any tax deduction benefit on the $10,000 deduction).
