I live in Washington State and had income from property sales in California for 2016 for which excess real estate taxes were withheld, and which were refunded in 2017 for which a 1099-G was issued. However I DID NOT take a deduction for the California State taxes on my Federal Schedule A for 2016, but instead I took the deduction for Washington State sales taxes. How do I keep Turbo Tax from making me pay 2017 federal taxes on the tax refund from California for 2016 when I did not take a deduction for the California State taxes on my 2016 Federal Return. I shouldn't have to pay 2017 Federal taxes on the tax refund from California, when I did not deduct the California State Taxes for 2016 on my 2016 Federal Tax return. However, I can't find a way to tell TurboTax that I did not take a schedule A deduction for these State taxes.
Don't enter the 1099-G from CA in TurboTax. It isn't required if you did not take an Itemized deduction for it. If you already entered the form, you can delete it.
But can you really ignore a 1099, since the IRS gets a copy of it?
In this case, yes. Since the IRS has the prior year tax return, the IRS knows that the individual did not use state income taxes paid as their Federal itemized deduction for that year.
In fact, if the filing person does enter the 1099-G, and answers the followup questions properly about Schedule A, line 5a or 5b being checked on the prior year's tax return (5b for sales taxes in this case), then the 1099-G form data won't even be included as a part of that persons filed tax return with the IRS.