Originally Posted by
sydneyracquelle
Do NOT do this with a state! State tax refunds can possibly be considered taxable income while the payment will not be tax deductible or will be capped.
Originally Posted by
findark
A state tax refund is only taxable to the extent that it is a refund of a payment that was deducted in a prior year.
However there is the so-called SALT cap of $10k on deducting local/state/property tax from your federal return.
EDIT: or are you saying that the taxable part of the refund will be similarly capped?