Is state refund a nonbusiness income?

Need more informaion. A state refund for what?

Ira Smilovitz, EA Leonia, NJ

Assuming this is a refund of an individual's state income tax...

The taxable portion of the state refund is reported on Form 1040 Schedule 1 Part I Additional Income Line 1 Taxable refunds, credits, or offsets of state and local income taxes.

There was a lengthy worksheet to make the calculation on page 85 of the

Are you asking specifically whether a state income tax refund is included in nonbusiness income on line 7 of Worksheet 1 in Pub. 536 for calculating a net operating loss? You recently asked another question about using Worksheet 1 to calculate a net operating loss.

"Nonbusiness income" might have different meanings in different contexts.

Bob Sandler

By the way, can I just complain that I can't stand the new 1040 layout introduced during the Trump administration? The old layout was stable for decades and I'd gotten used to where various type of information was reported. With the new layout, I tend to have to look everything up. Yes, I realize there is some logic to it but I'd have preferred if they had just left it alone.

Yes, on line 7 of worksheet 1 in publication 536. I would like to know if state income refund should be included there.

Were those taxes deducted from your taxes in the year they were paid? I'd think that if you received money that you had deducted earlier, it would be taxable. But if you didn't deduct it, it should not be taxable.

Please read How To Figure an NOL Nonbusiness deductions (line 6). This is on page 3.

Do not enter business deductions on line 6. These are deductions that are connected to your trade or business. They include the following.

State income tax on income from your trade or business (including wages, salary, and unemployment compensation).

But as a sole proprietor, you weren't allowed to deduct the portion of state and local taxes on net profit from your business (and thus reduce federal self-employment tax) paid during 2020 anyway. The deduction, limited to $10,000, is taken on Schedule A Line 5 if you itemize, and the tax isn't apportioned between net profit from business and nonbusiness income.

As the state and local income tax payments made during 2020 weren't a nonbusiness deduction in 2020, then the refund of the overpayment received in 2021 isn't nonbusiness income.