Amend 2006 1040 by removing state and local income tax deduction ...
Is there a net tax benefit where a Schedule A deduction, ie. state/local taxes ($5k) affords no tax benefit in a a prior year (2006) because of the AMT, ie. the tax liability would have been the same with or without the deduction? Where the inclusion of a large St/loc income tax deduction resulted in a large state tax refund in a prior year, must that refund be scheduled on the 1040 in the following year?To the extent the deduction (could?) should not have been scheduled/claimed, is it a better course to amend the prior return, 2006, and remove the claimed deduction, or should the refund simply not be scheduled ont the 2007 return?
Discussion:
On my 2006 return, I had adjusted gross income of 82k. On Shcedule A I claimed 47k in itemzied deductions, the largest being a miscellaneous deduction for 37.5 k for a loss on a converted Roth IRA (for which the tax had been completely paid and whose validity was thoroughly vetted and not up for discussion here), 4.7 in state and local taxes and 6k of unreimbursed employee expenses.
Until I began working on my 2007 return, I did not realize the implication of the state refund I received in 2007. On my 2006 return, the AMT income on on the Form 6251 is 81k, and the AMT was 5.4k.
When I refigured the 2006 return (hypothetically since its already filed) by removing the 5k in state and local taxes from Schedule A, the AMT doesn’t change. In fact, Line 28 of of the 6251 is identical. It seems clear I received zero benefit from claiming the s/l tax deduction on Sch A. I could have simply left off the deduction. Or I could have itemzied sales tax which would have been a fraction of the state and local income taxes.
The Turbotax program worksheet would have a different set of assumptions if I amended the return. Obviously, I could go back and amend the return (you have three years, right) and remove the deduction. Or is that unnecessary under the “net tax benefit” rule (about which I have heard).
Help would be greatly appreciated.
Thanks.
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