I can run the worksheets, with a bit of effort, but the result does not seem to match the premise. As I understand the premise, a tax refund is taxable to the extent it provided a tax benefit in a prior year. So it seems that to the extent the tax was not used to provide a tax benefit due to limitations on Schedule A itemized deductions, the tax refund should not be treated as income when it is received in a subsequent year. However, the State and Local Tax Refund Worksheet does not seem to take into account the extent to which a tax was not allowed to be used as a Schedule A deduction. Here's an example (simplified, may not work precisely with IRS worksheet): Prior year total deductions: $54,000 (taxes=$45k; other=$9k) prior year allowed deductions: $45,000 disallowed deductions due to limitation: $9,000 this year's tax refund: $13,000
amount of this years tax refund that is taxable: $13,000
why is it not, at most, say $4k?