Was it a refund of property tax that you paid in the same year, or was it a refund of property tax that you paid in an earlier year?
If it was for the same year, just deduct it from the total property tax that you paid.
If it was for an earlier year, did you claim an itemized deduction for property tax in the earlier year? If not, you don't report the refund at all. You received no income tax benefit when you paid the property tax, so the refund is not taxable income and does not affect your income tax return.
If you did claim an itemized deduction for property tax in the earlier year, technically you should treat the refund as an itemized deduction recovery.
This is fairly complicated, and TurboTax will not do the calculations for you.
The idea is to calculate how much of the refund you have to report as income by determining how much of a tax benefit you received by deducting the refunded property tax in the earlier year.
The details and a worksheet are in the section on "Recoveries" in IRS Publication 525. There are two simpler options.
One is to just report the full amount of the refund as other income on Form 1040 line 21, without bothering to do the calculations to figure out how much of it actually has to be reported as income.
The IRS will not complain if you do this, but you could be paying more income tax than necessary.
However, there's a very good chance that if you did the calculations the entire refund would turn out to be taxable anyway.
The other simple option is to deduct the refund from the property tax that you paid when you figure your deduction for the current year, the same as if it was a refund of property tax you paid in the same year. This is technically not correct, and could also result in paying more income tax than necessary, but the IRS is not likely to complain.
This question was previously answered by rjs
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