I "think" it works like this (someone correct me if I'm "off" a bit)
IF you had state Income taxes and property taxes of 12,000 declared on your 2021 Federal tax return.
It was limited to 10,000...thus a $2000 excess not used.
IF you then received a $3600 refund during 2022 for 2021 state taxes.
You would enter the full $3600 as a state refund on your 2022 tax return, but then the $2000 not able to be used the prior year is subtracted from that amount, and only 1600 of the state refund ends up being included as Federal taxable income.
Thus you make sure you include everything possible as your deduction amounts in one year, and as long as you consistently transfer the TTX file from one year to the next, the tax software keeps track of those numbers. The main issue one has to keep an eye on is if the state changes the refund for some reason, then the refund amount might need to be corrected when you go thru the state refund section the next year.
____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
