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When you have to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it.
This would be deducted as a miscellaneous itemized deduction on Schedule A (Form 1040).
If the amount you repaid in the year was more than $3,000, you can deduct the repayment or you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. This means that at the time you included the income, it appeared that you had an unrestricted right to it.
This would require you recalculate your past year and claiming the difference in tax on Form 1040, line 73.
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