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Deductions & credits
Thank you for the response. The reason I think it is not taxable is because that's what Turbo Tax calculated and explained in the "Learn More" link. I erroneously entered the 2022 refund as potential income in the 2023 tax return (recall, I received it in 2024, so it shouldn't have been entered for 2023), and the software calculated $0 tax on it. The explanation made sense to me, because I was subject to the SALT cap of $10k, so I could not use the deduction (so I got no tax benefit from it). It was not my determination that the refund was non-taxable - I learned it from Turbo Tax. Did I misunderstand the software's explanation? So, my question assumes Turbo Tax was correct and that I understand it correctly - and, if so, then I was confused why it became taxable simply because it was received in 2024 instead of 2023 as typically happens. Studying my 2024 tax return that I'm working on now, the software treats the 2022 refund simply as extra income - it does not do the calculation that I can see in the 2023 tax return where I had already entered it. Furthermore, Turbo Tax 2024 is also NOT taxing my 2023 state tax refund, just like the 2023 software did not tax the 2022 refund, mentioned above. So, it is consistent in the way it does not tax a prior year state refund, but it handles my 2022 state refund very differently in the 2024 return.
I followed your instructions for the Income section of the 2024 software and nothing changes. The 2022 refund is still taxed while the 2023 refund is not. I did consider excluding the 2022 refund from the software but won't that raise a red flag with the IRS since they will have received the 2022 1099G? Thanks again for your guidance. I want to get it right, of course, but I also want to understand it and make sure it makes sense.