How to calculate Recovery of State/Local Tax Refund on Form 8960, line 7?

[p4leeucsd]

For Form 8960, I need to modify my investment income to reflect the recovery of state/local tax refund (line 7)?   Does TT have a worksheet to calculate this?  Thank you. 

[JohnB5677]

Line 7 of the 8960 is Other modifications to Investment Income.  This is for Net Operating Losses, Passive activity adjustments, Adjustments for distribution of trusts or estates, etc.  There is no need to make any adjustment related to tax refunds.

FORM 8960 Instructions

[64dancer]

Line 7 is for Recoveries of deductions taken on a prior year's Form 8960. A recovery or refund of a previously deducted item increases net investment income in the year of the recovery.

In 2020, I had a value on 8960 line 9b. I believe I now need to include that (or a portion of it) in income in the year of the recovery. For most people, that would be 2021. For me, I have not yet received by tax refund so it will be for 2022 if I am reading the instructions for line 7 correctly.

According to another forum, I need to manually enter the number in Forms Mode. TT does not calculate this.

My question is how to calculate the amount to put on line 7. I am looking at the Deduction Recoveries Worksheet in the instructions and cannot determine what they are asking for for Line 1. It asks for the amount of recovery included in gross income, but not to include it if it is included in net investment income in the year of recovery. What does that all mean?

Line 2 asks for the amount of recovery that would've been included in gross income but for the application of the tax benefit rule under section 111. What does that mean?

Line 4 asks for the % of the deduction allocated to the net investment income in the prior year. If the deduction wasn't allocated between investment income and noninvestment income, enter 100%. How do I determine if it was allocated?

I think I can handle the rest of the worksheet.

I had $3,495on Form 8960 Line 9b in 2020. It reduced my NIIT by $132.

[64dancer]

8960, line 7 is also for "Recoveries of deductions taken on a prior year's Form 8960". Instructions state to See Deduction Recoveries & fill in the Line 7 Worksheet.

How do you fill out this worksheet? I deducted 3495 from a prior 8960, line 9b, resulting in a savings on my NIIT of $132. How do I use this information to fill in my current 8960 line 7?

[HopeS]

A recovery or refund of a previously deducted item increases net investment income in the year of the recovery. 

Generally, for purposes of determining the gross amount of the recovery, including the recovery of any amount that was deducted in a prior year, regardless of the application of the tax benefit rule. For example, if a taxpayer receives a refund of state income taxes from a prior year, such a refund would be included in the taxpayer's gross income. There are exceptions to the general rule provided in the IRS guidance in the link below.

Review IRS guidance on Form 8960.  Click on Line 7-Deduction Recoveries Worksheet

Deduction Recoveries

@64dancer 

[64dancer]

Form 8960, line 7 is also for "Recoveries of deductions taken on a prior year's Form 8960". Instructions state to See Deduction Recoveries & fill in the Line 7 Worksheet.

How do you fill out this worksheet? I had a state tax refund of $7193 and I deducted $3495 of this on a prior 8960, line 9b, resulting in a savings on my NIIT of $132. How do I use this information to fill in my current 8960 line 7?

[64dancer]

Thank you for your response. I have that Line 7 worksheet in front of me. The questions are not very clear and I cannot find anything that explains them. Line 2 asks for the amount of recovery that would have been included in gross income...

I received a state refund of $7193. Had I itemized, that would have needed to be on this year's Form 1040, SCH 1, Line 1. Since I did not itemize, I did not do that.

Form 8960, Line 7 is for a deduction recovery as a result of making a deduction in a prior year. My deduction in a prior year was $3495. So, I believe that amount is my recovery for Form 8960's purpose. I am just trying to find something that verifies this.

[DaveF1006]

Please review the instructions for filling out form 8960 and specifically review what is required to be put into Line 7-Other Modifications to Investment Income. Scroll to the area of these instructions that address Line 7.

Next scroll to the bullet point that address Recoveries of deductions taken on a prior year's Form 8960. Then there is a clickable link that will take you to Recoveries of Deductions.

Here are instructions that will inform you rather or not to report that prior year's deduction. Here it mentions if you had a AMT reporting requirement in 2021, you may have been unable to claim the deduction and this is an exception for not reporting this deduction on your 8960 for this year.

Let me know if this helps.

@64dancer 

[64dancer]

Unfortunately, it did not. I have the instructions memorized I have read them so many times. 

Also, if I ever do figure out what the modification is, there is nowhere in TT to enter it.  All this work for $6 or $12 (once I decide what my starting number is on the Line 7 of the Deduction Recoveries Worksheet)

When you go to "ANY OTHER TAXES", it asks if you have a modification to the NIIT due to a recovery of a prior year deduction. I click "YES". It then asks about other taxes, but never about the NIIT modification. So, I can't even enter it.  

And if you are going to tell me I need to manually do it by downloading the form to my computer rather than using on-line TT, I can't. My desk top is too old to update. My laptop is too full to update. My husband's work computer blocks me from downloading it. So, I need TT On-line to step-up and allow me to make the entry.

[p4lee]

link doesn't work

[DaveF1006]

Try this link. This should work. i have corrected my post from above as well.  Thank you for bringing this to my attention.

@p4lee