itemized deductions SALT over $10,000

[ejc]

I have $16,000 + in SALT deductions, but my state taxes of $9000+ include a refund of $4000+.  When I do turbo tax for 2025, it will ask if I got a state tax refund and when I answer yes , $4000+, will it tax the refund as normal income since I itemized for 2024, but will most likely use the standard deduction for 2025.  Or will it look at the actual Salt deductions for $16,000+ and give me credit for the 6000+ that I did not use, therefore hopefully canceling out the tax due in 2025 for the state refund of $4000+?  If I override the line for state taxes pd in 2024 in schedule A and use the actual tax amount then I think that might solve the issue. But then I read one cannot efile a return that has an item overridden.

[AnnetteB6]

When you enter your state tax refund into your return for 2025, there is a behind-the-scenes worksheet that is used to determine whether your state refund actually contributed to reducing your taxes in 2024 or if the SALT limitation prevented that portion from being deducted.  If the worksheet calculation shows that the SALT limitation was not affected by the amount that you received as a refund, then the state refund will not be taxable on your 2025 return.

If you are using a desktop version of TurboTax, you can take a look at the worksheet that will be used by going to Forms at the top of the screen.  Then click Open Form in the upper left corner and search for St Refund Wks.  

You should not override the amount for state taxes paid in 2024.  It will not only prevent electronic filing, but it will void any TurboTax guarantee as well.

[Opus 17]

Turbotax should perform a "tax benefit calculation."  You will be asked certain questions, or the program will take the info from your 2024 return if you use your 2024 return to start 2025.

Basically, in your situation, if you had $9000 of withholding in 2024 but will receive a $4000 refund in 2025, you took too large a deduction, $9000 instead of $5000.  The tax benefit calculation looks at what your tax and deductions would have been if you had only deducted the $5000.  In your case, that would still result in a SALT deduction over the cap ($12,000 instead of $16,000), so you received no benefit from the extra $4000 deduction, so the refund should not be taxable. 

[ejc]

Thanks.  Based on your answer I will not have to pay taxes on the 2024 state refund in 2025.

[ejc]

Thanks.  Based on your answer I would not owe any 2025 taxes on the 2024 state refund.