How to handle Minnesota Prior Year Homestead Refund

Mweivoda
Mweivoda Member Posts: 1 Newcomer
in Filing my taxes

I'm in process of filing my taxes for 2025 and have come across an issue when using FreeTaxUSA.

I'm a fulltime Minnesota resident and bought a home in July 2024. I used FreeTaxUSA to file my taxes last year - with itemized deductions, due to the high interest rate I'm paying on my mortgage. In September of 2025 I ended up receiving a homestead credit refund, returning some of those property taxes paid in 2024.

Now, while filing taxes for 2025, I see there is a question on the state portion asking "Did you receive a 2024 Homestead Credit Refund on Form M1PR?". Responding yes and entering the amount here, simply deducts that refund from this year's property tax paid, and only seems to impact my state return.

After reviewing Publication 525, it appears I should instead claim this refund as income on my federal form 1040. I can do that, listing the refund as "other income" under "uncommon income". However when I go to complete my state return, I'm again confronted with the "prior year homestead refund" question - which would then double-count that income, since the 'uncommon income' is also copied over from my federal return.

Does anyone have any experience with this situation? Thanks in advance!

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Answers

  • MatthewD
    MatthewD FreeTaxUSA Admin, FreeTaxUSA Agent Posts: 901 image
    Hi Mweivoda,

    When you Itemized your federal return in 2024, you got a deduction of your property tax as an itemized deduction. So, you must claim the refunded taxes you deducted as income for 2025.

    It is understandable, you are concerned with any potential double taxation when reporting the taxable state refund on the federal and state returns.

    I recommend that you contact Customer Support so someone can look at your account and go over the details.

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