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Level 1

Solved

Taxable State Refund

1 reply
21 views

I itemized deductions on my 2017 Federal taxes. I received a tax refund from New York state. A large portion of that refund is from a Solar Credit ($5,000). This credit is not part of the Federal itemized deductions and did not reduce my federal taxes through itemization. Do I need to include that value as part of my taxable state refund even though it did not reduce my Federal taxes in any way?

TurboTax Premier Windows

Level 12

Unfortunately, yes.

State tax refunds are considered federal taxable income when the are created by itemizing deductions.

While state tax deductions are often based on a federal deductions, there are many state tax deductions and credits that are different from the federal deductions and credits. By taxing state tax refunds, the IRS is aware you a reporting income from credits/deductions that may not have reduced your previous federal taxes.

For more information on taxable income, follow this link: What is Taxable Income

[Edit 3/2/2019 8:05 AM PST]

Level 12

Unfortunately, yes.

State tax refunds are considered federal taxable income when the are created by itemizing deductions.

While state tax deductions are often based on a federal deductions, there are many state tax deductions and credits that are different from the federal deductions and credits. By taxing state tax refunds, the IRS is aware you a reporting income from credits/deductions that may not have reduced your previous federal taxes.

For more information on taxable income, follow this link: What is Taxable Income

[Edit 3/2/2019 8:05 AM PST]