I received a Dept of Defense certificate for income tax adjustment declaring that I paid back over $3200 in overpayments. Can I deduct this?

[Malteo]

The certificate says "You may be able to deduct the amount repaid as a miscellaneous deduction".

[IsabellaG · Accepted solution]

This situation is referred to as a Claim of Right under IRC Section 1341. It can be claimed as either a miscellaneous deduction or as a credit if the amount repaid is more than $3000. The deduction is the simpler way to claim your repayment, but a credit might save you more money.

See this answer for directions:

https://ttlc.intuit.com/replies/4980739

[TaxCertificateQuestion]

Good afternoon ma'am

I've asked this question in a different post, but I didn't get much traction, but I found this post and it seems to be the same scenario. I work in a Air Force Finance office and we have a member who paid a debt he should never have gotten due to an error in our accounting system. DFAS(Defense Finance and Accounting service) said they can't refund and instead issued a tax certificate with the amount($963). This tax cert is for calendar year 2018. Would the member just file an amended tax return with the tax cert? Can you explain how the process would work in TurboTax? And would he get that all that money back or just a deduction?  Any help would be appreciated thanks.

[RobertG]

Yes, if you reported this income in prior years, you can claim repayments of over $3,000 on your tax return. You can deduct this kind of repayment under Internal Revenue Code section 1341 as a 'Claim of Right'. 

Deducting a repayment is covered in IRS publication 525 on page 34.  

If the amount you repaid was more than $3,000, you can deduct the repayment as an 'other itemized deduction' on Schedule A (Form 1040), line 16. You can also choose to take a tax credit for the year of repayment. Figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax.

The way to figure these amounts is shown in Publication 525.

To claim the credit you will need to use a TurboTax desktop edition, so you can enter it in 'Forms Mode'.

In the Forms mode, click on Schedule 3 line 12, and it will take you to the  'Other credits and payments smart worksheet'.  Here is where you enter your 'Claim of Right, IRC 1341 credit for repayments of prior year income'.