1. The IRS follows the Tax Benefit Rule (IRC § 111). The logic is that when you deducted those state taxes in 2025, you told the IRS, "This money is gone; I didn't 'earn' it as disposable income." Wh...
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1. The IRS follows the Tax Benefit Rule (IRC § 111). The logic is that when you deducted those state taxes in 2025, you told the IRS, "This money is gone; I didn't 'earn' it as disposable income." When the state gives it back in 2026, it is treated as "new" found wealth or a recovery of a previous expense.
Under the US tax structure, all "recoveries" of previously deducted items are categorized as Gross Income. Since AGI is simply Gross Income minus specific "above-the-line" adjustments, the refund naturally lands there.
2. No. Actually, there are many reasons to avoid itemizing- as you mention, Medicare premiums and NIIT. Add to it higher AGI for calculating taxable social security and deductible medical expenses. You are right about different tax rates in different years as well.
3. The program tells you how to maximize and does give you a standard vs itemized comparison along with a choice. This is a self-prepared return and you seem to understand the situation. However, if you want to comment where a developer will read it, you can. Once you file your return, as long as the settings to receive communication from Intuit don’t block it, you will see a pop-up message or receive an email with a survey asking you about your experience. We encourage you to leave your notes and comments there. “Voice of the Customer” notes and comments are read and acted upon. If you are using TurboTax Desktop, you can also leave feedback at the Final Steps tab.