[kmsprint]

When I filed 2007 returns, I received $42 refund from NY and paid $145 tax to NJ when I filed the tax return. I also itemized my federal tax return for 2007. For 2008, shouldn't I get credit for paying taxes on 145-42=$103 (net of payment and refund)? This is the amount that was not reported on 2007 federal return as state tax.

[ebaines]

In essence, you are correct. You paid NJ tax of $145 in April 2008, so you can add that to the total amount of state taxes paid in 2008 - just as if you had paid estimated taxes to NJ throughout the year. As for the refund from NY - if they actually sent you a check for that refund (as opposed to applying the $42 as a credit towards your 2008 taxes), they should have sent you a 1099-G form to document that amount, and you include the $42 as income in your 2008 federal return.