Thank you for giving me the opportunity to assist you. I will give the best answer that I can with the information provided.
Hello, you are correct that if the cllient itemizes in 2008 and deducts his state tax, then gets a refund, the year that he gets the refund will be when he recognizes the income because that is when it is paid.
For deduction purposes, the state tax paid is deducted in the year paid, not the year that it corresponds to--In this case, it would also be 2011, presuming that the 2008 refund is applied to the 2009 tax in 2011.
You cannot deduct it on the 2009 return because it wasn't paid in 2009. TPS doesn't know the date that the return was paid, it assumes 2008 was filed timely. You will have to manually remove this from the 2009 return so it doesn't deduct, and add it to the 2011 return on schedule A
It is the same as if the client was making estimated payments to the state. If he made 4 timely estimated tax payments of $200 for tax year 2010, $200 in april 2010, $200 in June 2010, $200 September 2010, and $200 in January of 2011, then only $600 of those estimated state tax payments are deductible in 2010. The remaining $200 of tax
would be deducted in 2011, when paid.
Hope this helps...let me know if you still need assistance.