NOL - Net operating Loss ---> Non business income clarification

[burgerguy14]

I am trying to file for a Net Operating loss in a prior year.  

Does anyone know if Taxable State tax refunds are considered "non-business income"?

So far I have interest and dividends for that bucket.

Here are the instructions from IRS Pub 536:

Nonbusiness income (line 7). Enter on line 7 only income that is not related to your trade or business or your employment. For ex-ample, enter your IRA distributions, pension benefits, social security benefits, annuity in-come, dividends, and interest on investments. 

Also, include your share of nonbusiness income from partnerships and S corporations.

Do not include on line 7 the income you receive from your trade or business or your employment. This includes salaries and wages, self-employment income, unemployment compensation included in your gross income, and your share of business income from partner-ships and S corporations. 

[Anonymous_]

See https://www.irs.gov/publications/p536#en_US_2022_publink10008450

Since almost all itemized deductions are considered nonbusiness deductions, it would stand to reason that a state tax refund would be considered nonbusiness income.

I'm going to page @Mike9241 for input.

[Mike9241]

I'm assuming that you properly took the state income tax payments on schedule A rather than as some sort of business deduction on page one of your 1040, then they would be nonbusiness.

[burgerguy14]

I received the state tax refund in 2017 for 10,757.  The prior year (2016) I claimed state & local income taxes paid 19,154 on Schedule A.

On a side note: I never understood why my refund amount is taxable in the next year. 

[Anonymous_]

Your state tax refund is taxable in the following tax year if you received a tax benefit from a state tax deduction in the previous year (e.g., you itemized and deducted state income tax in the previous tax year).

[Mike9241]

I received the state tax refund in 2017 for 10,757.  The prior year (2016) I claimed state & local income taxes paid 19,154 on Schedule A.

that's where it belonged so nonbusiness

 a side note: I never understood why my refund amount is taxable in the next year. 

in one year you took the deduction of $X that lower your Federal Income taxes unless you were paying alternative minimum tax form 6251. that duction was excessive because you got part refunded in the following year, under rules for cash basis taxpayers a refund of an excess deduction, one that produces a tax benefit, is taxable in the year received.