Error in Nebraska Deduction Logic

[phredd12]

There appears to be a logic error in the TurboTax Nebraska calculation for deductions. The software correctly subtracts state taxes from the Federal Schedule A, but it uses the full amount of state tax, not the $10,000 capped amount used to calculate Federal Schedule A total. This results in an incorrect lower adjusted Nebraska deduction amount.

[SteamTrain · Accepted solution]

@phredd12 

I have not figured out yet how NE allows for that situation, nor how they justify doing that yet....but, the actual instructions for line 8 of the 1040N are as follows  (my italics & underline):

"Line 8 State and Local Income Taxes. If you itemized deductions on your federal return, you must enter the amount of state and local income taxes reported on Federal Schedule A, line 5a even if the total amount of state and local taxes was limited to $10,000 ($5,000 married, filing separately) on Federal Schedule A, line 5e. If you entered general sales taxes on Federal Schedule A, line 5a, do not enter an amount on line 8"

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See page 8 of  the actual Nebraska 2019 Instructions booklet:

https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/tax-forms/2019/f_1040n_booklet.pdf

[phredd12]

Thanks. That is somewhat contradictory to: All taxpayers that claimed itemized deductions on their federal return are allowed the larger of the Nebraska standard deduction or federal itemized deductions, minus state and local income taxes claimed on Federal Schedule A.   I interpret this as only those taxes claimed on schedule A.

[phredd12]

The Nebraska tax form says to enter the amount on Line 5. If your state tax exceeds $10,000, line 5 is entered as $10,000.

[SteamTrain]

......what is your source for that NE form instruction? 

Mine above is from the actual NE Tax department website...and does not say that.....it says you must use the 5a even if there  is a 10k limit.

[phredd12]

I looked at the actual Nebraska tax form. It makes absolutely no sense to reduce your Federal tax deduction by more than the Nebraska Tax was included. No sense at all. The form says use line  5 from the Federal Schedule A. Line 5 from schedule A has several sub lines. The overall line 5 is capped by $10,000. Why would Nebraska eliminate legitimate deductions not related to state tax?

[SteamTrain]

Oh...I agree it makes no sense...but again...

WHERE did you get/see the NE form that says that?

The ones I'm using are directly from NE DOR website, not from any alternates and not from a TTX form display either.

The form 1040N on "Nebraska's" own DOR Website, line 8 says use 5a from the Federal Schedule A:

https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/tax-forms/2019/f_1040n.pdf

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And here's a link to All the official NE forms too:

https://revenue.nebraska.gov/about/forms/individual-income-tax-forms

[SteamTrain]

And if TurboTax is using line 5a from the Federal Schedule A....then TTX is  following NE DOR's own published rules ....and TTX can't bypass them without the NE DOR's assent.

Someone  in NE would have to challenge the NE DOR by giving them a call directly, or get a tax lawyer involved before TTX could change their treatment...and even then, only after the NE DOR agrees that they made a mistake and makes the change in their tax forms. 

(of course, major mistakes on state forms.....at the state source, is not unheard of...but NE had the same instructions last year, and they haven't changed/corrected it yet)

[phredd12]

SteamTrain,

You have convinced me Nebraska is that illogical.  Thank you so much for looking into this. TurboTax is off the hook. I am convinced Nebraska limits your charitable contributions by the amount of Nebraska income tax paid over $10,00.  I would likely not have imagined Nebraska would do that and not look at the tax handbook.  Once agian thanks.

[mmreinhardt]

Did anyone end up figuring this out?