Tax Benefit Rule

A provision that limits the recognition of income from the recovery of an expense or loss properly deducted in a prior tax year to the amount of the deduction that generated a tax benefit. For instance, if a taxpayer properly deducts from the federal income tax return state taxes that were paid, and then receives a refund on some/all of those state taxes, the refund is income to the extent that it was deducted in the prior year.