How does itemized deduction of last year affect this year's return?

If you itemized deductions last year and you deducted state income taxes and you recieved a state income tax refund then the state refund would be taxable income this year.

The only time it matters is if you deducted state or local income taxes last year as an itemized deduction, then got some of it refunded to you from the state of local government. If that happens, then the amount that was refunded has to be added as income the next year, since you deducted it but didn't end up really paying it.

If you received a tax benefit by itemizing last year that needs to be "recaptured," or undone because you were reimbursed for the amount deducted, then you may owe additional tax the following year.

The most common example of this is the Schedule A deduction for state income tax. If you deducted the state income tax you paid in the prior year, and then you received a refund of some of that tax, part or all of that refund becomes taxable in the next year.

Other examples where income is recognized in the next year are reimbursed medical expenses, and insurance reimbursements for casualty losses.

If you claimed a deduction of last year's federal return for state income taxes that were withhold from your pay and were later refunded, then the state income tax refund is taxable. If you did not deduct state income taxes, then the state income tax refund is not taxable.

The only thing that I can think of that relates is if among the itemized deductions was a capital loss which needs to be carried over to the present tax year. Absent such, there would be no effect.

To check if any of the itemized deduction was recaptured.

It probably has a additional set of questions to ask you.