If income was repaid in the 2003 tax year and was reported and taxed on a prior Iowa return, that income may be deducted on the 2003 tax return. However, it may be to your advantage to take a credit on line 66. You may take either the deduction on this line or take a credit on line 66, but not both.

Example of Claim of Right Deduction

A taxpayer reported $7,000 in unemployment benefits on the 1998 Iowa return. In early 2003 the taxpayer was notified that $4,000 of the unemployment benefits had to be repaid. The benefits were repaid by the end of 2003. The taxpayer may claim a $4,000 income adjustment on line 24 of the 2003 Iowa return.

A credit may be taken if there was income repaid in the 2003 tax year that was reported and taxed on a prior Iowa return. To calculate the credit, recompute the tax in the prior year without the repaid income. Enter the tax reduction that was calculated as a credit on this line. However, it may be to your advantage to take an income adjustment on line 24. You may take either the credit on this line or a deduction of the amount repaid on line 24, but not both.

Example of Claim of Right Credit

A taxpayer received a $5,000 bonus in 2000 and reported it on the 2000 Iowa return. In 2003 the taxpayers employer advised that the bonus was awarded in error and was to be repaid. The bonus was repaid by the end of 2003. After recomputing the 2000 Iowa return, there is a $440 reduction in tax. The taxpayer may claim a credit of $440 on line 66 of the 2003 Iowa return.

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