Claim of Right

[Gchatani]

This year we received a lump sum payment following an SSD approval for my wife.  Half of it was for 2024 SSD benefits. We then reimbursed her LTD carrier a large sum back. Our 2024 income was significantly higher than 2025 so we will need to seek a credit from last year’s taxes as opposed to the deduction in 2025. I will need to prepare the 2024 dummy return to determine the amount of credit but don’t think I can do it manually as we had a good bit of capital gains which were taxed at a different rate than our W2 wages.  Is there a way I can access my 2024 tax return prepared on Turbo Tax mobile and just simply adjust my W2 wages by the amount we paid back and then determine the credit from there?  Or do I need to prepare a full blown 2024 with all my W2 wages plus capital gains?

[KrisD15]

That would not be a Claim Of Right.

Claim of Right is the other way around. it's when you have to pay back funds.

What I think you want to do is enter the 1099 and answer Yes to a partial lump sum. 

Once this is stipulated, the program will help you determine if the 2024 tax on that part of the income (the amount attributed to 2024) is more advantageous for you than your 2025 tax rate. 

It can all be done in your 2025 Tax Year TurboTax program and regardless of which year tax rate is used, it is all reported on your 2025 return. 

 HERE is a link with more information.

[Gchatani]

Pretty sure is it is a Claim of Right Repayment.  This year we paid her LTD insurance carrier $35,000 from the SSD lump sum payment.  That $35,000 was reimbursed to the carrier for payments we received from the carrier in 2024 and we paid taxes on that last year.  We should get a credit this year for the taxes we paid last year on that amount.  I just need to figure out how to recreate my 2024 tax return less the $35,000.  I know I need to purchase the 2025 Desktop version to complete the Claim of Right.  I would rather not purchase the 2024 version just to calculate the amount of our credit (I.e. create the dummy return). 

[KrisD15]

I see, I mistakenly thought you were referring to the lump sum payment you received. I did not understand that it was paid to your carrier. 

HERE is a link that explains how to take the deduction or credit. 

[Gchatani]

Thanks.  My question is do I have to purchase both the 2024 and 2025 desktop versions to accomplish this?  I only need the 2024 software to create the dummy return to figure the credit. 

[KrisD15]

What did you use to file your original 2024 return? 

[Gchatani]

Turbo Tax online/mobile. 

[Gchatani]

So do I need the 2024 software to recalculate for the 2025 credit?

[DianeW777]

Yes, if you want to be sure of your calculations on the difference in tax you should use 2024 TurboTax.  

Taking the Credit in TurboTax (Must use TurboTax Desktop)  How to switch from online TurboTax to the TurboTax software? 

There are two components to taking the credit in TurboTax. The first part entails determining the amount of the tax that was overpaid in the year the income was received. This requires using the TurboTax Desktop product (or another method) to determine what the tax liability would have been without the income. 

1. The credit can only be applied using the TurboTax Desktop product installed on a computer, in the Forms mode.
2. Switch to Forms mode by clicking on Forms icon in the program.
3. In the list of forms on the left click on 1040/1040RSR Wks above the Form 1040 itself.
4. Scroll down to Other Credits and Payments Smart Worksheet (near the bottom) and enter the amount that you have computed on Line D Claim of Right, IRC 1341 credit for repayments of prior year income.
5. Click on the Step-by-Step or Easy Step icon in the upper right corner to return to the interview mode and finish working on your tax return.
   1. What is a claim of right repayment? 

@Gchatani