I received a 1099-G for a prior year state income tax refund. When inputting the 1099-G information into the tax software, it said it was a special case, and directed me to IRS Publication 525 to figure the amount I need to enter into the software, which will go into Schedule 1, Line 1 of the 1040.
In the prior year, I was subject to the AMT.
IRS Pub. 525 states: "If you were subject to the AMT in the year of the deduction, you'll have to refigure your tax for the earlier year to determine if the recovery must be included in your income. This will require a refiguring of your regular tax, as shown in Example 35, and a refiguring of your AMT. If inclusion of the recovery doesn't change your total tax, you don't include the recovery in your income. However, if your total tax increases by any amount, you received a tax benefit from the deduction and you must include the recovery in your income up to the amount of the deduction that reduced your tax in the earlier year."
I do not understand what the IRS is saying in the highlighted part of the above statement. In layman's terms, exactly what portion of my recovery do I include as part of income in the tax software? I have manually refigured my total tax for the prior year and have determined that my total tax did increase as a result of including the recovery/refund.
Thanks!
