@whphillips wrote:
Thank you! I appreciate your time and expertise-
So that I understand, if I received the bonus last year 2024 and repay it back in 2025, I claim the deduction (in 2026 actual year) for the 2025 tax year? I do itemize because I have rental properties.
Since the repayment is made in 2025, you claim the deduction or credit on your 2025 tax return, which you file in Spring 2026 (generally by April 15, 2026).
Itemized deductions are not rental expenses. Itemized deductions refer specifically to deductions on schedule A for medical expenses, state and local taxes, personal mortgage interest (not rental interest) and gifts to charity. If your itemized deductions are less than the standard deduction, you would use the standard deduction instead on your tax return (check to see if you have a schedule A or not). If you did not have a schedule A on your 2024 tax return and your finances are not expected to change in 2025, then you probably would not get the full benefit from the deduction method of claiming the repayment.
You are allowed to calculate the repayment both ways (deduction method and credit method) and use the one that is best for you (although as I said, there would be an audit risk if you use the credit method but you did not have a reasonable expectation at the time of the bonus that you had an unrestricted right to the bonus).
