If you took it as a credit, it shows up on schedule 3. It is a time consuming method that requires re-figuring your taxes from the prior year. The IRS says:
Method 1. Deduction on Schedule A
Figure your tax for the year of repayment claiming a deduction for the repaid amount.
Method 2. Credit on Schedule 3
Figure your tax for the year of repayment claiming a credit for the repaid amount. Follow these steps.
-
Figure your tax for the year of repayment without deducting the repaid amount.
-
Refigure your tax from the earlier year without including in income the amount you repaid in the year of repayment.
-
Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the credit.
-
Subtract the answer in (3) from the tax for the year of repayment figured without the deduction (step 1).
Example 40.
For 2018, you filed a return and reported your income on the cash method. In 2019, you repaid $5,000 included in your 2018 income under a claim of right. Your filing status in 2019 and 2018 is single. Your income and tax for both years are as follows:
2018
With Income Without Income
Taxable Income$15,000 $10,000
Tax$ 1,613 $ 1,013
2019
Without Deduction With Deduction
Taxable Income$49,950 $44,950
Tax$ 6,853 $ 5,753
Your tax under method 1 is $5,753. Your tax under method 2 is $6,253, figured as follows:
Tax previously determined for 2018 $1,613
Less: Tax as refigured − 1,013
Decrease in 2018 tax $ 600
Regular tax liability for 2019 $6,853
Less: Decrease in 2018 ta − 600
Refigured tax for 2019 $6,253
You pay less tax using method 1, so you should take a deduction for the repayment in 2019.
In your case, since you span multiple years, you have to figure each of those years and the amounts that were in those years. I had an audit case this summer that covered multiple years of repayment and it was a good bit of work.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
