This issue is more complicated than what it appears (nothing in tax is simple):
- While you do get a benefit, it is not as simple as just claiming a deduction for the $16,000
- What you have here is a "Claim of Right" issue under Section 1341 of the Code
- There are several calculations that need to be run here in determining the benefit that you are entitled to
- As a result, I recommend that you consult with a tax professional and have them prepare your return.
- Make sure you bring all documentation to the tax professional; including your 2008 tax return.
EDIT
While it doesn't change my response, not sure why I was not able to see @Critter's response when mine was posted 45 minutes later. Frustration of the new platform.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
