MA has what is called "the senior Circuit Breaker credit". It is available to homeowners or renters 65 or over and is computed as follows:
1) Various things are added back to MA AGI to get MA "total income". 2) "Total income" is multiplied by 10% to get the threshold amount. 3) For a homeowner, the credit is the lesser of $970 or (RE tax - threshold amount) 4) For a renter, the credit is the lesser of $970 or (25% of rent - threshold amount).I have two related questions about this.
The first question applies to both renters and homeowners:
If you get a state income tax refund and part of the refund is because of the CB credit, how is the taxability of the refund affected?
To make it concrete, say the 2009 state income tax deduction taken on Sched A was $3000 and also assume total itemized deductions were at least $1000 more than the standard deduction. Assume the actual 2009 state income tax was also $3000 and so before considering the CB credit there was $0 due/$0 refund. But the taxpayer gets a $900 CB credit and a $900 refund. How much of it is taxable? Is it $0 because the state income tax imposed was $3000, matching the claimed deduction? Or is the $900 fully taxable because it is considered to have lowered the imposed tax to $2100 and therefore the claimed deduction turned out to be too large? Or does the second question come into play?
The second question relates to (and maybe affects) the first but only applies to homeowners:
Is a state income tax credit like this considered a recovery of real estate tax paid and therefore the taxability of the part of the state tax refund caused by the credit is figured by computing the taxable part of a RE tax recovery rather than figuring it as the result of taking what turned out to be too big of a state income tax deduction?