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Illinois just sent out a pleasant surprise: a rebate for those who claimed the property tax credit on their 1999 Illinois 1040.

And who says the government never does anything nice for you?

But I know there must be strings. The letter states: "Please be advised federal law may subject this check to federal income taxes." I'm wondering what form that will take.

Simplest answer is probably that the rebate is treated as ordinary income.

Maybe yes, maybe no. And then, of course, if it is taxable income, what kind?

But since it is equal to the property tax credit I claimed, might it get tangled up with the amount of property tax I deducted on my 1999 Schedule A? That is, is it possible that I have to amend my 1999 1040 to reflect that I didn't really pay that much property tax since I got some of it rebated?

You definitely don't need to do that. Your 1999 return showed your deductions for 1999. If you received this income in 2000, it goes on your 2000 return.

You've called this payment two different things. I think the treatment of it on your Federal return depends on which it is.

If it's a reduction in your Illinois income tax, you treat it as an income tax refund on line 10 of the 1040. It's taxable income to you if you deducted your Illinois income tax paid on your 1999 Schedule A.

If it's a rebate of property taxes, it's line 21 miscellaneous income if you deducted the property taxes on your 1999 Schedule A.

If you didn't deduct the tax underlying the refund on your 1999 Federal return, you have no income to report on your 2000 Federal return.

Phil Marti
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