no it doesn't because your real estate tax deduction already exceeds the $10,000 limit. you get no benefit from the additional state income taxes. the state tax refund is only taxable if it produced a tax deduction for 2021.
this is from IRS PUB 525 the worksheet on page 26. the wording has been adjusted to reflect a 2021 return
To determine amounts to enter on lines 1a and 1b of Worksheet 2, complete the following:
1. Enter the income tax refund from Form(s) 1099–G (or similar statement) . . . . . . . . . . . . . . . . . . . . . . .
2. Enter the refunds received for state and local real estate taxes and state and local personal
property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Total state and local refunds. Add lines 1 and 2. But don’t enter more than the amount of your state
and local taxes shown on your 2021 Schedule A, line 5d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Is the amount of taxes paid in 2021 (generally Schedule A, line 5d), more than the amount on your 2021 Schedule A, line 5e?.................................................................
No. Enter the amount from line 3 on line 4 and go to line 5. .....................................
Yes. Subtract the amount on your 2021 Schedule A, line 5e, from the amount of state and local
income taxes reported on your 2021 Schedule A, line 5d. Enter the result ...................................
5. Is the amount on line 3 more than the amount on line 4?
No. [STOP] None of the refunds on lines 1 or 2 are taxable.
Yes. Subtract line 4 from line 3 and enter the result here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Add lines 1 and 2 and enter the result here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Divide line 1 by line 6. Then multiply by the amount on line 5 and enter the result here and on
Worksheet 2, line 1a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Divide line 2 by line 6. Then multiply by the amount on line 5 and enter the result here and on
Worksheet 2, line 1b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
