1. A state tax rebate is not taxable income on your federal return.
2. A large state tax refund may be taxable later, if you itemized your deductions.
For example, suppose you have $5000 of state tax withholding in 2025 that you enter on your schedule A as an itemized deduction. Then, because of the $2000 state tax credit, you get a $2000 state tax refund that is paid in 2026. That tax refund may be taxable income in 2026 as a reimbursement of a previous deduction, depending on your other income and deductions.
3. If you claim a federal tax credit on the device, you must reduce the price of the equipment that you claim on your federal return if the rebate was from the utility, or was a subsidy such as for low income taxpayers. However, if this is an expected income tax credit, you do not need to reduce the price when you claim the federal credit.
