Schedule A Line 5e - Limit of $10,000 for Taxes Paid

[Berkshires]

Schedule A Line 5e - Limit of $10,000 for Taxes Paid

I cannot find an explanation explaining why the amount of taxes paid would be limited to $10,000. I haven’t run into this before, but have now due to having filed an amended federal tax return for a prior year in 2023. Will I be able to use the amount over the $10,000 limit later (or next year) to be able to deduct the excess amount over $10,000?

Thank you!

[xmasbaby0]

Are you looking at the deduction for state and local taxes---the one that includes your property tax?  (SALT)  That deduction has been capped at $10,000 since the tax laws changed for 2018 and beyond.

[Berkshires]

This is the first I’ve really noticed, or even gone over the limit amount for this. 

So it would seem then that although I’m losing the excess amount above the $10,000 limit, at least in part due to the excess amount of Estimated Tax Payments made during the year, I will still pay state income tax on the refund I receive. I know that’s a good reason to keep estimates and payments close to the amount you expect to owe, but it hardly seems fair to still be taxed on the full amount of the refund. Am I missing something?

Thanks!

[Berkshires]

The following is updated from original post above.

This is the first I've really noticed, or even gone over the limit amount for this.

So I'm losing the benefit of any excess amount above the $10,000 limit as a deduction that would be a result of state and local taxes paid. It would be only in part due to any excess amount of Estimated State Tax Payments made during the year. Thus the reason, at least in part, for getting a federal tax refund.

[SteamTrain · Accepted solution]

No, I don't think you are missing something...though some extra subtlety is involved.

BUT...if you were capped at 10,000 on your 2022 tax return, and if you filed a state tax return in 2023 for 2022 taxes, where used state taxes paid as a federal deduction, and you received a state refund for that year, then the excess over 10,000 from last year will limit how much of the state refund is taxable this year's Federal tax return.

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Example:  If you used state taxes paid as a Federal deduction for 2022, and it was capped at 10,000  (out of, say, 12,000 paid)....and then you received a $3,000 state refund for 2022.....then the unused excess ($2000) offsets the $3000 refund, such that only $1000 is used as Federal income for 2023.   

...(or if the excess deduction over 10,000 was $3000, and your state refund was 2,000, then it wipes out the entire state refund, so none of it is taxable income for 2023 Federal taxes ...((and, yeah, then the extra 1,000 is lost for use)))

That is taken care of during the entries of your 2022 state refund on the Wages&Income page of the software.

(Just edited a wrong year date...and a few mis-spellings)

[Berkshires]

Thank you!