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If you repaid amounts reported as income in the prior year -
----- if the amount is $3,000 or less, it is a miscellaneous itemized deduction subject to the 2% limitation.
----- if the amount is more than $3,000, it is a miscellaneous itemized deduction which is not subject to the 2% limitation.
If the amount was received under a "claim of right" (you had unrestricted use of the funds but later found out you didn't), you have one more choice: if the amount is more than $3,000, you can choose instead to claim a credit for the additional tax incurred by reporting the repaid amount in income. See IRS Publication 525 for an explanation of that method. It is available at: http://www.irs.gov/publications/p525/ar02.html#d0e9279
Look under Deductions and Credits, then Other deductible expenses, then Less common expenses if the amount is under $3,000.
TurboTax on-line does not support the "claim of right" computation. TurboTax desktop, in the forms mode, permits the credit to be entered in the "smart worksheet" above line 72, but you still would need to compute it manually.
https://ttlc.intuit.com/replies/3302260
Here's a fairly lengthy explanation of "Claim of Right" with instructions at the bottom:
Internal Revenue Code (IRC) Section 1341 repayment credit is one of the two options that a taxpayer has (the other being a tax deduction) when the taxpayer is faced with a situation known as a Claim of Right.
A Claim of Right is, in simple layman's terms, basically the case where a taxpayer reported income as being taxable in one year, but then has to repay it back in a future tax year. An example of this would be where a retired person receives a pension payment during 2009, and then in 2013 receives a letter from the pension administrator informing them that an internal audit of the pension computer system revealed that the administrator made a mistake and overpaid benefits in 2009. As such, they now want the pension recipient to repay (the overpayment) by writing a check back to the pension plan. And as odd as that sounds, a variation of that very same thing happened to my own (retired) mother a few years ago.
But, the interesting tax "quirk" is that since the taxpayer already paid 2009 income taxes on the pension payment (which it turns out they weren't legally entitled to keep, after all), then there has to be a mechanism to make the taxpayer whole. Thus arises the concept of a Claim of Right, where the IRC 1341 is one of the two choices, as I've mentioned above.
Hopefully that helps you to understand the basics.
Now then, a taxpayer can either claim a deduction or a credit for this repayment, and here's how it works mechanically . . .
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.
Figure your tax for 2013 without deducting the repaid amount.
Refigure your tax from the earlier year without including in income the amount you repaid in 2013.
Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the credit.
Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1).
If you choose a deduction, please enter it here:
Federal taxes - Deductions & credits - I'll choose what I work on - Other deductions and credits - Other deductible expense
Please answer YES to "Did you have any other deductions that are not subject to the 2% limitation?"
Please enter the amount you repaid under, "Claim of Right Repayment (Only if over $3,000).
If you choose a credit (This can only be done in the Forms mode of the Desktop version of TurboTax), please enter it here:
FORMS - F1040 - Below line 70 is the Other Payments and Credits Smart worksheet.
Please enter the credit in line D.
This credit should show up on F1040, line 71.
I've included a link to the IRS website for your reference:
http://www.irs.gov/publications/p525/ar02.html#en_US_2013_publink1000229600
If you repaid amounts reported as income in the prior year -
----- if the amount is $3,000 or less, it is a miscellaneous itemized deduction subject to the 2% limitation.
----- if the amount is more than $3,000, it is a miscellaneous itemized deduction which is not subject to the 2% limitation.
If the amount was received under a "claim of right" (you had unrestricted use of the funds but later found out you didn't), you have one more choice: if the amount is more than $3,000, you can choose instead to claim a credit for the additional tax incurred by reporting the repaid amount in income. See IRS Publication 525 for an explanation of that method. It is available at: http://www.irs.gov/publications/p525/ar02.html#d0e9279
Look under Deductions and Credits, then Other deductible expenses, then Less common expenses if the amount is under $3,000.
TurboTax on-line does not support the "claim of right" computation. TurboTax desktop, in the forms mode, permits the credit to be entered in the "smart worksheet" above line 72, but you still would need to compute it manually.
https://ttlc.intuit.com/replies/3302260
Here's a fairly lengthy explanation of "Claim of Right" with instructions at the bottom:
Internal Revenue Code (IRC) Section 1341 repayment credit is one of the two options that a taxpayer has (the other being a tax deduction) when the taxpayer is faced with a situation known as a Claim of Right.
A Claim of Right is, in simple layman's terms, basically the case where a taxpayer reported income as being taxable in one year, but then has to repay it back in a future tax year. An example of this would be where a retired person receives a pension payment during 2009, and then in 2013 receives a letter from the pension administrator informing them that an internal audit of the pension computer system revealed that the administrator made a mistake and overpaid benefits in 2009. As such, they now want the pension recipient to repay (the overpayment) by writing a check back to the pension plan. And as odd as that sounds, a variation of that very same thing happened to my own (retired) mother a few years ago.
But, the interesting tax "quirk" is that since the taxpayer already paid 2009 income taxes on the pension payment (which it turns out they weren't legally entitled to keep, after all), then there has to be a mechanism to make the taxpayer whole. Thus arises the concept of a Claim of Right, where the IRC 1341 is one of the two choices, as I've mentioned above.
Hopefully that helps you to understand the basics.
Now then, a taxpayer can either claim a deduction or a credit for this repayment, and here's how it works mechanically . . .
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.
Figure your tax for 2013 without deducting the repaid amount.
Refigure your tax from the earlier year without including in income the amount you repaid in 2013.
Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the credit.
Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1).
If you choose a deduction, please enter it here:
Federal taxes - Deductions & credits - I'll choose what I work on - Other deductions and credits - Other deductible expense
Please answer YES to "Did you have any other deductions that are not subject to the 2% limitation?"
Please enter the amount you repaid under, "Claim of Right Repayment (Only if over $3,000).
If you choose a credit (This can only be done in the Forms mode of the Desktop version of TurboTax), please enter it here:
FORMS - F1040 - Below line 70 is the Other Payments and Credits Smart worksheet.
Please enter the credit in line D.
This credit should show up on F1040, line 71.
I've included a link to the IRS website for your reference:
http://www.irs.gov/publications/p525/ar02.html#en_US_2013_publink1000229600
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