I paid in 2018 a true up state tax bill in NY and got an equivalent state tax refund from NJ. How should I report these settlements in my 2018 Federal Tax return?

[Opus 17 · Accepted solution]

If you paid state income tax in 2018, you can list that as an itemized deduction on schedule A.  Whether or not it actually lowers your taxes depends on all your other itemized deductions.

For the refund from New Jersey you need to do a tax benefit analysis.  That is, did you get a tax benefit by deducting the refund in a past year.  You need to look at your schedule A itemized deductions for whichever year(s) was covered by the refund, and see if you deducted your state income tax in that year.  If you did, then the refund now represents a reimbursed deduction, also called a taxable recovery.  This is "other income" in the Miscellaneous income section.  I think there is also a special section just for "taxable refunds of state and local taxes."  It could be entered in either place.  If you did not get a tax benefit from deducting the state income taxes in the past, then the refund is not taxable now.