I am itemizing both my Federal and State tax returns. It's a joint return and we have $6083 in AZ tax credits, which is several thousand dollars larger than what we owe in 2025 for AZ tax so we will have AZ state tax credit carryovers. I believe there is a safe harbor rule that allows you to enter the tax credits as state tax paid to allow you to claim them as deductions on your federal return.
If I enter the $6083 in AZ tax credits as AZ taxes withheld Turbotax believes I should get this as a refund. This isn't really correct as I believe the safe harbor rule is only allowing you to claim the AZ tax credits as state tax paid in your schedule A (which reduces your federal taxable income). It isn't actually AZ taxes that I paid.
Instead I can enter the $6083 as other taxes paid (Schedule A, Line 6) but then Turbotax does not subtract the $6083 from my Schedule A in the AZ Schedule A. In the state return I entered $6083 as the amount of state taxes deducted on Federal Schedule A. When I view the AZ schedule A in Forms mode I can see the $6083 entered in "adjustment to state income taxes" box above Line 7 but isn't placed in Line 7 of the AZ return.
How can I enter my AZ tax credits correctly in both my Federal and State Return?
Thanks,
Ken
