Based on this document from the IRS, Turbo Tax is not handling State Refunds correctly.
https://www.irs.gov/newsroom/with-new-salt-limit-irs-explains-tax-treatment-of-state-and-local-tax-r...
There is a link to a PDF with multiple examples. The second example explains that IF the amount of State and Local property taxes, that were limited to the SALT limits, if the state refund does not change the itemized deductions, then you are not required to include the refund in gross income.
In other words, if your itemized deductions are limited to $5,000 for individual/$10,000 married joint return, if the refund does NOT reduce the State and Local taxes to the point that the itemized deductions are changed (i.e. still limited to $5,000 or $10,000), then you didn't received a tax benefit from the refund thus the refund is not taxable.
Situation 2: Taxpayer B paid local real property taxes of $5,000 and state income taxes of $7,000 in 2018. Section 164(b)(6) limited B’s state and local tax deduction on B’s 2018 federal income tax return to $10,000, so B could not deduct $2,000 of the $12,000 state and local taxes paid. Including other allowable itemized deductions, B claimed a total of $15,000 in itemized deductions on B’s 2018 federal income tax return. In 2019, B received a $750 state income tax refund due to B’s overpayment of state income taxes in 2018.
Situation 2: Taxpayer B paid local real property taxes of $5,000 and state income taxes of $7,000 in 2018. Section 164(b)(6) limited B’s state and local tax deduction on B’s 2018 federal income tax return to $10,000, so B could not deduct $2,000 of the $12,000 state and local taxes paid. Including other allowable itemized deductions, B claimed a total of $15,000 in itemized deductions on B’s 2018 federal income tax return. In 2019, B received a $750 state income tax refund due to B’s overpayment of state income taxes in 2018.
I understand that Turbo Tax is not complete yet however these rules are the same as 2018 as well and my $1200 refund was marked as taxable by Turbo Tax in 2018. Their calculation is wrong.
