J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

11.6 Other Recovered Deductions

The rules in the preceding section (11.5) for determining whether a refund of state sales tax is taxable also apply to the recovery of other items for which you claimed a tax deduction, such as a refund of real estate taxes (16.1) adjustable rate mortgage interest (15.1), reimbursement of a deducted medical expense (17.4), a reimbursed casualty loss (18.2), a return of donated property that was claimed as a charitable deduction (14.1), and a payment of debt previously claimed as a bad debt (5.33).

EXAMPLE

You filed a joint return for 2011 and claimed itemized deductions of $12,700, which exceeded your standard deduction of $11,600. You were not subject to the alternative minimum tax. In 2012, you received the following recoveries for amounts deducted for 2011:

Medical expenses	$ 200
State income tax refund	400
Interest expense	325
Total	$ 925

The $400 state income tax refund was less than the difference between the state income tax you deducted and your state general sales taxes. The total recovery of $925 is taxable on your 2012 return. It is less than $1,100, the excess of your 2011 itemized deductions over the allowable standard deduction ($12,700 − 11,600). You report the state and local income tax refund of $400 on Line 10, Form 1040, and the balance of $525 on Line 21, Form 1040.

If the total recovery had been $2,500 instead of $925, $1,100 would be taxable (the excess of $12,700 in itemized deductions over the $11,600 ...