Dave is correct, you will be able to get a benefit from the repayment, but you will have to claim it as a refundable credit on Form 1040 Schedule 3 to do so.
You will need the desktop/download version of TurboTax to claim the credit.
Here is how you do that in TurboTax, courtesy of Critter. You will use method 2, because itemized deductions won't help you.
Repayment over $3,000. If the amount you repaid was more than $3,000, you can recover the tax you originally paid using one of two methods. You can do it as a deduction on schedule A or a tax credit on Schedule 3 line 13 of the 1040 form.
Figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax.
Method 1. Claiming a deduction for the repaid amount. You deduct it as a miscellaneous itemized deduction on Schedule A line 28.
This is the flow in TurboTax:
Federal taxes > Deductions & credits > I'll choose what I work on > Other deductions and credits > Other deductible expense>Go thru to third screen> answer YES to "Did you have any other deductions that are not subject to the 2% limitation?"
Enter the amount you repaid under, "Claim of Right Repayment (Only if over $3,000).
Method 2. Figure your tax claiming a credit for the repaid amount. Follow these steps.
1. Figure your tax without deducting the repaid amount.
2. Refigure your tax from the earlier year without including the income that you had to repaid.
3. Subtract the tax calculated in (2) from the tax shown on your return for the earlier year. This is the credit.
This is the flow in TurboTax (This can only be done in the Forms mode of the Desktop version of TurboTax)
Go to FORMS (top right of main screen) > Schedule 3 > Enter the amount on Part II Line 13 d
This credit should show up on Form 1040 Schedule 3, line 13d
I've included a link to the IRS website for your reference: http://www.irs.gov/publications/p525/ar02.html#en_US_2014_publink1000229605
This method is shown in IRS publication 525 as example 40 on page 35.
@DaveF1006
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