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Publication 17


A recovery is a return of an amount you deducted or took a credit for in an earlier year. The most common recoveries are refunds, reimbursements, and rebates of deductions itemized on Schedule A (Form 1040). You also may have recoveries of non-itemized deductions (such as payments on previously deducted bad debts) and recoveries of items for which you previously claimed a tax credit.

Tax benefit rule.(p91)

You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year. For more information, see Publication 525.

Federal income tax refund.(p91)

Refunds of federal income taxes are not included in your income because they are never allowed as a deduction from income.

State tax refund.(p91)

If you received a state or local income tax refund (or credit or offset) in 2014, you generally must include it in income if you deducted the tax in an earlier year. The payer should send Form 1099-G, Certain Government Payments, to you by February 2, 2015. The IRS also will receive a copy of the Form 1099-G. If you file Form 1040, use the State and Local Income Tax Refund Worksheet in the 2014 Form 1040 instructions for line 10 to figure the amount (if any) to include in your income. See Publication 525 for when you must use another worksheet.
If you could choose to deduct for a tax year either:the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you did not choose to deduct for that year. For examples, see Publication 525.

Mortgage interest refund.(p91)

If you received a refund or credit in 2014 of mortgage interest paid in an earlier year, the amount should be shown in box 3 of your Form 1098, Mortgage Interest Statement. Do not subtract the refund amount from the interest you paid in 2014. You may have to include it in your income under the rules explained in the following discussions.

Interest on recovery.(p91)

Interest on any of the amounts you recover must be reported as interest income in the year received. For example, report any interest you received on state or local income tax refunds on Form 1040, line 8a.

Recovery and expense in same year.(p91)

If the refund or other recovery and the expense occur in the same year, the recovery reduces the deduction or credit and is not reported as income.

Recovery for 2 or more years.(p91)

If you receive a refund or other recovery that is for amounts you paid in 2 or more separate years, you must allocate, on a pro rata basis, the recovered amount between the years in which you paid it. This allocation is necessary to determine the amount of recovery from any earlier years and to determine the amount, if any, of your allowable deduction for this item for the current year. For information on how to compute the allocation, see Recoveries in Publication 525.

Itemized Deduction Recoveries(p91)

If you recover any amount that you deducted in an earlier year on Schedule A (Form 1040), you generally must include the full amount of the recovery in your income in the year you receive it.

Where to report.(p91)

Enter your state or local income tax refund on Form 1040, line 10, and the total of all other recoveries as other income on Form 1040, line 21. You cannot use Form 1040A or Form 1040EZ.

Standard deduction limit.(p91)

You generally are allowed to claim the standard deduction if you do not itemize your deductions. Only your itemized deductions that are more than your standard deduction are subject to the recovery rule (unless you are required to itemize your deductions). If your total deductions on the earlier year return were not more than your income for that year, include in your income this year the lesser of:


For 2013, you filed a joint return. Your taxable income was $60,000 and you were not entitled to any tax credits. Your standard deduction was $12,200, and you had itemized deductions of $14,000. In 2014, you received the following recoveries for amounts deducted on your 2013 return:
Medical expenses$200
State and local income tax refund400
Refund of mortgage interest325
Total recoveries$925
None of the recoveries were more than the deductions taken for 2013. The difference between the state and local income tax you deducted and your local general sales tax was more than $400.
Your total recoveries are less than the amount by which your itemized deductions exceeded the standard deduction ($14,000 − 12,200 = $1,800), so you must include your total recoveries in your income for 2014. Report the state and local income tax refund of $400 on Form 1040, line 10, and the balance of your recoveries, $525, on Form 1040, line 21.

Standard deduction for earlier years.(p91)

To determine if amounts recovered in 2014 must be included in your income, you must know the standard deduction for your filing status for the year the deduction was claimed. Look in the instructions for your tax return from prior years to locate the standard deduction for the filing status for that prior year.


You filed a joint return on Form 1040 for 2013 with taxable income of $45,000. Your itemized deductions were $12,650. The standard deduction that you could have claimed was $12,200. In 2014, you recovered $2,100 of your 2013 itemized deductions. None of the recoveries were more than the actual deductions for 2013. Include $450 of the recoveries in your 2014 income. This is the smaller of your recoveries ($2,100) or the amount by which your itemized deductions were more than the standard deduction ($12,650 − $12,200 = $450).

Recovery limited to deduction.(p91)

You do not include in your income any amount of your recovery that is more than the amount you deducted in the earlier year. The amount you include in your income is limited to the smaller of:


During 2013 you paid $1,700 for medical expenses. Of this amount, you deducted $200 on your 2013 Schedule A. In 2014, you received a $500 reimbursement from your medical insurance for your 2013 expenses. The only amount of the $500 reimbursement that must be included in your income for 2014 is $200—the amount actually deducted.

Other recoveries.(p91)

See Recoveries in Publication 525 if: