If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it.
- Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it.
- In most cases, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction.
For tax years beginning after 2017, you can no longer claim any miscellaneous itemized deductions, so if the amount repaid was $3,000 or less, you aren’t able to deduct it from your income in the year you repaid it.
If the amount you repaid was more than $3,000, you can deduct the repayment as an other itemized deduction on Schedule A (Form 1040), line 16, if you included the income under a claim of right.
- This means that at the time you included the income, it appeared that you had an unrestricted right to it.
- However, you can choose to take a credit for the year of repayment.
- Figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax.
To enter:
- Under the Federal taxes, Deductions and Credits, select I'll choose what I work on.
- Scroll down to Other Deductible Expenses and select Start.
- Continue with the onscreen interview until you get to the Did you have any of these less common expenses? screen. Select Repayments of $3,000 or less (previously included in income). Answer Yes.
- On the Tell us about your less common expenses, enter a description and amount.
- Continue until complete.
