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Investors & landlords
You can either claim a deduction or a credit for this repayment.
If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. In most cases, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction.
Repayment over $3,000. If the amount you repaid was more than $3,000, you can deduct the repayment (as explained earlier under Type of deduction ). However, you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. This means that at the time you included the income, it appeared that you had an unrestricted right to it. If you qualify for this choice, figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax.
Figure your tax for 2013 without deducting the repaid amount.
Refigure your tax from the earlier year without including in income the amount you repaid in 2013.
Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the credit.
Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1).
If you choose a deduction, please enter it here:
Federal taxes - Deductions & credits - I'll choose what I work on - Other deductions and credits - Other deductible expense
Please answer YES to "Did you have any other deductions that are not subject to the 2% limitation?"
Please enter the amount you repaid under, "Claim of Right Repayment (Only if over $3,000).
If you choose a credit (This can only be done in the Forms mode of the Desktop version of TurboTax), please enter it here:
FORMS - F1040 - Below line 70 is the Other Payments and Credits Smart worksheet.
Please enter the credit in line D.
This credit should show up on F1040, line 71.
I've included a link to the IRS website for your reference:
http://www.irs.gov/publications/p525/ar02.html#en_US_2013_publink1000229600
I hope this resolves your question. If you need further help with this issue, please respond to this post.