Do state tax refunds applied to taxes in the year received count as prepaid or paid in the year received? This seems relevant to recent tax law changes (i.e., SALT cap).

[DoninGA]

A state tax refund applied to next years state taxes owed would be included in the state income taxes paid on next years Form 1040 Schedule A Line 5a.  So it would be included as part of the cap of $10,000 in 2018.

[rjs · Accepted solution]

It is paid in the year that you received the refund. It is not prepaid.

If your 2016 state tax return, which you filed in 2017, showed a refund, and you applied that refund to your 2017 state income tax, that is considered paid in 2017 and would be included in your itemized deduction for state income tax on your 2017 federal tax return. That deduction on your 2017 federal tax return is not capped by the new tax law.

If your 2017 state tax return, which you file in 2018, shows a refund, and you apply that refund to your 2018 state income tax, that is considered paid in 2018. It would be included in your itemized deduction, if any, for state income tax on your 2018 federal tax return. That deduction on your 2018 federal tax return is limited by the cap in the new tax law.

[rtaxc]

I filed my 2018 state taxes in 2020 not 2019 and received a refund which I applied to my 2019 state taxes, what year should I use this 2018 state refund (forwarded as a 2019 tax payment) as a federal deduction in the year I filed 2020 or the year it was applied to 2019?  

[Hal_Al]

@rtaxc 

2020, the year the money was  actually paid to the IRS, regardless of which year it was for. 

[fanfare]

@Hal_Al 

 not true for refunds applied to next year.

@rtaxc 

In <a tax year> you can include:
"any part of a prior year refund that you chose
to have credited to your <tax year> state or local income taxes"

 If you applied it to a 2019 state tax return, you would itemize it on your federal 2019 tax return.

[Hal_Al]

@fanfare  Is what poster (apparently) describes even possible: file a 2018 tax return, in 2020,  and apply the refund to 2019? 

I took "received a refund which I applied to my 2019 state taxes" to mean he physically got the money and used it to remit his 2019 tax payment (in 2020).  

[fanfare]

sounds like the OP rtaxc  is catching up on several unfiled tax years.

[rtaxc]

I should clarify, the 2018 state return with a refund was filed in 2020. On that 2018 state return there was a line where I could apply my 2018 refund  to the following year state estimated tax, 2019, which I did.  The question is, which year on my federal return can I apply the forwarded 2018 state refund (which became an estimated 2019 state payment) as a schedule A federal deduction?  2020 when the state tax payment was actually made or 2019 which is the tax year that payment is used for. 

AND BTW when doing  2019 federal taxes with TT, TT downloads info from 2018 TT from my 2018 federal/state return then applies the state 2018 refund/forwarded payment as a 2019 federal sched A tax deduction.  (I'm assuming that the 2019 TT program assumes that I filed the 2018 state return in 2019 not 2020.  However the state sends me a 1099 G  for year 2020 which says that I received a state refund in 2020 for tax year 2018.

[rtaxc]

That is true

[rtaxc]

I did not physically receive the refund, I simply used the filed 2018 state return to forward the refund to 2019 state taxes.

[rtaxc]

Where did you see this in federal instructions for sched A state tax deductions?

[fanfare]

open instructions for Schedule A in Adobe Reader and use CTL-F search for that text. 

It will take you right to it.