TP paid too much state estimated tax for 2008, all during 2008.
So on the 2008 federal return, there's a large deduction in Schedule A. But for 2009 there'll be a state income tax refund.
The refund would typically be taxed as income for 2009, which seems fair since to balance tax benefit on 2008 Schedule A.
But TP is subject to AMT for 2008. There, state taxes are added back into income. So there wasn't a real tax benefit in 2008. (This was checked using TurboTax; if the 2008 state estimated tax was reduced to produce no refund, the federal tax remained the same and schedule A line 5 didn't switch to sales tax.)
On the 2009 return next year, will there be a calculation that sorts all this out, so the refund isn't really taxed? Is there some pitfall to be avoided about taxes on the refund?
Thanks.