No, I don't think you are missing something...though some extra subtlety is involved.
BUT...if you were capped at 10,000 on your 2022 tax return, and if you filed a state tax return in 2023 for 2022 taxes, where used state taxes paid as a federal deduction, and you received a state refund for that year, then the excess over 10,000 from last year will limit how much of the state refund is taxable this year's Federal tax return.
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Example: If you used state taxes paid as a Federal deduction for 2022, and it was capped at 10,000 (out of, say, 12,000 paid)....and then you received a $3,000 state refund for 2022.....then the unused excess ($2000) offsets the $3000 refund, such that only $1000 is used as Federal income for 2023.
...(or if the excess deduction over 10,000 was $3000, and your state refund was 2,000, then it wipes out the entire state refund, so none of it is taxable income for 2023 Federal taxes ...((and, yeah, then the extra 1,000 is lost for use)))
That is taken care of during the entries of your 2022 state refund on the Wages&Income page of the software.
(Just edited a wrong year date...and a few mis-spellings)
____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
