Can I enter the prior year sales tax deduction that would have been allowed instead of state income tax when itemizing to help offset tax of state income tax refund now?

[lisa_sanders]

State income tax refund recovery exclusion calculation Schedule 1 Part III line 7b i is where I see a space for this , but no place to enter in TT program

[ErnieS0]

No. Unless you amend your 2019 income tax deduction and claim sales taxes instead of income taxes. Otherwise you will have to use the income tax amount on 2019 Schedule A line 5a.

The IRS requires you to add back state income tax because you deducted state taxes withheld and paid, but you didn’t actually pay that much because you got a refund. For example, if you had $1,000 in state tax withheld, and received a $100 state refund, then your state tax paid (liability) was only $900 ($1,000 - $100) but you deducted the whole $1,000.

[lisa_sanders]

That is not correct relative to the tax benefit rule . As per IRS Pub 525 and their examples it is capped by state income tax paid less the sales tax deduction that would have been allowable (see retirement below).

 In TT I can alter the line input that shows the deduction I took last year for state income tax withheld to reduce it by the sales tax deduction that would have been allowable otherwise and get the same (correct) amount that is taxable result, BUT that does not really reflect correctly on the Schedule 1 Line 1 State and local Income Tax Worksheet down in Part III online 7b (1) Refigured SALT..line(b) where that number should appear.  In other words I can net it , but the schedule that is to be filed indicates it should be gross.

I see in a comment thread on an Intuit Pro version on this SALT Recovery Exclusion subject, where it is explained properly and appears that version has separate inputs.  Why not in TT?  If I am missing it, please explain.

[ErnieS0]

You may be confusing two issues. Last year’s sales tax deduction is a factor in determining the taxability of your state tax return. After clicking Done at the State and Local Tax Refund Summary:

• Select I itemized my deductions in 2019. Then say No. I claimed myself last year. Continue.
• On Let's See if Your 2019 Texas Refund Is Taxable select Yes, I’m ready to enter some info from it.
• On Let's Look at Line 5 of Your 2019 Tax Return select Box on line 5a is not checked. Then enter your 2019 state and local taxes paid.
• Enter your 2019 information until you come to Enter The 2019 General Sales Tax You Could Have Deducted. Enter the sales tax you could have deducted in 2019.

[ewrenn]

I have a similar situation. I itemized state tax instead of sales tax on my 2019 return. If I itemize sales tax, my itemized deductions will be the same and I won't have to pay tax on my state refund.

So to amend my 2019 deductions, do I file a 1040X and just fill in Part III - Explanation of changes with "correcting Schedule A with general sales tax included and box 5a checked, same total itemized deductions as in originally filed return" and then also include a corrected Schedule A that includes the sales tax number instead of state tax with box 5a checked?

[Hal_Al]

You do not need to amend your 2019 tax return to use the sales tax calculation, on your 2019 itemized deductions, in determining whether your 2019 state tax refund is taxable on your 2020 tax return,  TurboTax will make that determination.  But, you do need to initiate the calculation.

In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in  Home & Business)

 - Wages & Income

Scroll down to:

  - Wages and Salaries

   - 1099-Misc and Other Common Income

      - State and local tax refunds on form 1099-G.     Follow the interview

[ewrenn]

according toErnieS0 and my tax person, you have to file an amended return.  I was hoping ErnieS0  could answer my question.

Also, after mailing an amended return, can you file your next year's taxes based on that amended return even if it hasn't been processed yet?

[Cynthiad66]

File your 2020 return based on 2020 information.  The returns are basically stand alone and you can file them independently.  Yes you will need to file an amended return to claim prior year expenses.