Why does my MN refund go DOWN when I enter a Property Tax payment (deduction) on my Federal return? I would expect it to stay the same or increase. Thanks

[ReneeM7122]

Without seeing your return, it is difficult to guess why your state refund would decrease after entering a deduction.  You can request an offline review.  It could have to do with your income this year compared to last year or a number of other things.

[Jackie38]

Thank you, I wasn't aware of that. 

[Jackie38]

Update.  I've spent about 5 hours on the phone with TurboTax (I didn't pay extra for Live) and they finally sent it to a developer to check into.  The first agent and their manager tried to get me to just not enter the amount of property taxes I paid to avoid the issue of my MN refund going down by $600.  I should be able to enter my property taxes paid and trust that TurboTax is calculating correctly.  Also, I want to make sure others don't get penalized without realizing it.  I'll post another update when this question is resolved.  

[Jackie38]

TurboTax closed my case with no explanation.  This is the second time this has happened this year and it's very frustrating.  I'm willing to wait for an answer since I didn't pay for Live but it's not good customer service to close the case without a response.

Guess I will be leaving Turbo Tax now after all these years.

[Jackie38]

I received an email about my issue so it sounds like it is being worked on.

[DawnC]

Yes, if you received an email specifically regarding your issue, it is being looked into and you should hear something back soon.   If they requested a diagnostic file, follow the instructions in the email to send it.   And I do see an issue related to the MN state return and the property tax entry not allowing the higher itemized or standard deduction - which it should.  

[Jackie38]

I sent the diagnostic file on Monday and am still waiting for a response.  I don't understand why they asked me to reply to a turbotax email that got kicked back, saying I couldn't reply to that email address, but the agent I was working with was on the email and that went through.  Will update again when I hear something.     

[Jackie38]

I did get a response after sending my diagnostic file and they came back saying there was no issue.   Since I didn't feel comfortable filing my taxes through TurboTax still, I had them done by another company.  The results from that return were the same as TurboTax, so that is good.  

HOWEVER,  what I learned is that because we itemized our deductions on our Federal Taxes, we have the choice to itemize Minnesota deductions or not per the SALT program.  In my case, it was better not to itemize and to take the standard deduction.  TurboTax software never gave me that option and defaulted to itemizing, which lowered my refund.  I would hope that the software would default to the biggest refund, or at least bring it to my attention during the review process, but it didn't.   So anybody else in my situation is also losing out on additional tax refund dollars, which is $600 in my case.  I now plan to see if this hurt me in my prior returns, and file an amended return if necessary.   The only reason I became aware of  this situation is because I missed entering my property tax deduction at first.  If I hadn't done that, I would never have known that I had the option to leave it, or some other deduction, off in order to maximize the state refund.

I do want to mention that on my first call with TurboTax they referenced the SALT program and told me to leave the property taxes off my return, but I didn't feel confident about why I was doing that. 

I hope this helps someone else who may be in this situation.   

[DawnC]

SALT is an acronym for State & Local taxes.   The law limits the deduction of state and local income, sales, and property taxes to a combined, total deduction of $10,000. The amount is $5,000 for married taxpayers filing separate returns. Taxpayers cannot deduct any state and local taxes paid above this amount.    So, you may have already been maxed out on that deduction.  

When you itemize deductions, you can choose to deduct either state and local taxes (SALT) or your sales taxes paid during the year.   The SALT deduction (which is either state/local income tax plus property tax OR sales tax plus property tax) is capped at $5,000 for married couples filing separately and $10,000 for all other filers. In 2017 and earlier, there was no cap.

Here's an example that compares the changes.    

Minnesota allows the larger of itemized deductions or the standard deduction. Taxpayers may claim itemized deductions on the Minnesota return even if the standard deduction was claimed on the federal return. 

[Jackie38]

Thanks Dawn, that explains it well, but TurboTax didn't lead me to get the maximum refund.

I see in the example you provided it says:  "We’ll figure this out for you in Deductions Credits and let you know which deduction saves you the most money based on your situation", but the TurboTax program didn't do that for me. 

When I entered my property tax deduction amount, the Federal refund stayed the same, but the MN State refund DECREASED by $648 and I saw this message:

Property (Real Estate) Tax Deduction

Your property (real estate) tax deduction just saved you money on your taxes this year.

You have now maxed out the federal $10,000 deduction for itemized state and local taxes.

Any entries over the $10,000 limit won't impact your federal tax outcome, but may still benefit you on your state tax return. We'll include them automatically if this applies to you.

The tax deduction did NOT save me money.  My Federal refund stayed the same but my State refund went down.  If I leave out the property tax amount, TurboTax prompts me to enter it, which would reduce the amount of my state refund. 

It's not right that others in my same situation aren't being prompted about this.  TurboTax claims to guarantee you will get the maximum refund, but that's not happening here.  I would call TurboTax again but I don't feel like spending hours on the phone since I've spent so much time on this already.    

[DoTheMath]

I have seen the exact same thing. TurboTax MN is definitely picking the WRONG option for itemized vs. standard deduction in some cases with no obvious option or warning. As a software developer, I would call it a "show stopper". 

I was able to force it by editing the itemized form in MN and deleting some itemized deductions which forced it to switch back to the standard deduction (saving me $500!)