I repaid a military reenlistment bonus from 2008 in the amount of $4576.72 using an installment repayment agreement with the Defense Finance and Accounting Office @ 1% interest

[racestang2001]

I received the reenlistment bonus in 2008, retired in 2010 and received a letter in 2012 that I needed to repay a portion.  Repayment was monthly installments from 2012 to 2016. I was allowed to keep half my bonus for the time served and then pay back the $4576.72 for the part of the enlistment I didn't stay for because I retired. How do I claim the 4576.72 this year as a deduction?

[MargaretL · Accepted solution]

You can deduct only the amount that you actually paid in 2016 on your 2016 tax return. (Since you were paying back $4576 from 2012-2016, only your monthly installments paid in 2016 go to 2016 tax return, same applies for prior years).

As to how to report it - The repayment amount to DFAS is part of your itemized deductions. The data entry depends on how much was your repayment for the year.

* $3000 or less - Federal Taxes>Deductions & Credits>Other Deductions & Credits, select Other Deductible Expenses,  select No to Generation Skipping tax question, Yes to Less Common Expenses, enter description Repayment DFAS Form 705 and the amount.

* More than $3000 -  Federal Taxes>Deductions & Credits>Other Deductions & Credits, select Other Deductible Expenses,  select No to Generation Skipping tax question and No to Less Common Expenses, Yes to Any other Deductions that are not subject to the 2 % limitation, enter description Repayment DFAS  and the amount.

Note: For repayment on $3000, you may use the deduction instructions above or you may also figure out the credit. To make that choice, use the method (deduction above or credit explained below) that results in less tax. You won't be able to do it online, cd/download would be needed.

It’s a little tricky to figure your tax for 2016 claiming a credit for the repaid amount, please follow these steps.

1.       Figure your tax for 2016 without deducting the repaid amount.

2.       Refigure your tax from the earlier year without including in income the amount you repaid in 2016.

3.       Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the credit.

4.       Subtract the answer in (3) from the tax for 2016 figured without the deduction (step 1).

If itemized deduction results less tax, deduct the amount repaid. If figuring tax results in less tax, claim the credit figured in (3) above on Form 1040, line 73 and 74.

If you choose a credit (This can only be done in the Forms mode of the Desktop version of TurboTax (cd/download) please enter it at follows:

Select FORMS (upper right corner) and Select Form 1040 (left column)

- Below line 72 is the Other Payments and Credits Smart worksheet; please enter the credit on line 73D. This credit will show up on F1040, line 74.