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State and Local Refunds Taxable Worksheet for Form 1040

by Lacerte Tax 2018 Updated 1 year ago

To find out how the taxable portion of state and local refunds is calculated:

  1. Go to Screen 14.2, State Tax Refunds, Unemployment Comp.
  2. Click on the State Refund Wksht in the left-hand navigation panel.
  3. Mark the Itemized in prior year box.
    • If this box has not been checked, state income taxes gave no tax benefit in the prior year; therefore the entire state tax refund is nontaxable
  4. Additional entries on this screen are required to calculate the taxable portion of the state tax refund. See calculation below.

The worksheet is calculated as follows:

LineInstruction Input Field Name on Screen 14.2 or [Calculation]
1State and local income tax refunds (prior year)Income tax refunds, credits or offsets (2)
2Refunds attributable to post 12/31/20XX payments per IRS Pub. 525Refunds attributable to post-20XX ES/extension payments
3Net state and local income tax refunds[Add lines 1 and 2]
4State and local taxes paid from prior year Schedule A, line 5State and local income taxes paid
5Prior year allowable sales tax deductionAllowed or allowable general sales tax deduction
6Excess of income taxes deducted over sales taxes deductedState and local income taxes paid less Allowed or allowable general sales tax deduction
7Enter the smaller of line 3 or line 6[Smaller of line 3 or line 6]
8Itemized deductions from prior year Schedule A, line 29Itemized deductions from Schedule A, line 29
9Prior year recomputed itemized deductions (if phase out)
10Prior year base standard deductionBase Standard Deduction
11Prior year add'l standard deduction for age/blindnessNumber of age/blind exemptions
12Prior year disaster loss / new motor vehicle deductionNew motor vehicle tax deduction
13Prior year total standard deduction[Add lines 10, 11, and 12]
14Enter the larger of line 9 or line 13[Larger of line 9 or line 13]
15Subtract line 14 from line 8 (not less than 0)[Line 8 minus Line 14]
16Enter the smaller of line 7 or line 15[Smaller of line 7 or line 15]
17Negative taxable income (prior year)
18Refund with no tax benefit due to AMT or non refundable creditsRefund with not tax benefit due to AMT, non refundable credits, or 0% capital gain or qualified dividend rate
19State and local refunds taxable this year[Add lines 16, 17, and 18]

You cannot force the State Refund Worksheet to generate if the State Refund is nontaxable.

For more information, please review the IRS instructions for Form 1040, namely page 85.

Lacerte Tax

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