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State taxes are deducted in the tax year paid. The additional state taxes paid for 2010 in 2011 is a 2011 deduction.

Did you itemize for 2009 and 2010? State tax refunds are only taxable to the limit that they were deducted. The interview form should ask for the tax year and how much of the refund is taxable. State tax refunds are reported for the tax year received.
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