Deductions
Not Subject to
the 2% Limit
You can deduct the items listed below as miscellaneous itemized deductions. They are
not subject to the 2% limit. Report these items on line 27, Schedule A (Form 1040).
List of Deductions
Each of the following items are discussed in detail after the list.
- Amortizable premium on taxable bonds.
- Casualty and theft losses from income-producing property.
- Federal estate tax on income in respect of a decedent.
- Gambling losses up to the amount of gambling winnings.
- Impairment-related work expenses of persons with disabilities.
- Repayments of more than $3,000 under a claim of right.
- Unrecovered investment in an annuity.
- Expenses of officials paid on a fee basis.
Amortizable Premium
on Taxable Bonds
In general, if the amount you pay for a bond is greater than its
stated principal amount, the excess is bond premium. You can elect to amortize the
premium on taxable bonds. The amortization of the premium is generally an offset to
interest income on the bond rather than a separate deduction item.
Part of the premium on some bonds may be a miscellaneous deduction not subject to the
2% limit. For more information, see Amortizable Premium on Taxable Bonds in
Publication 529 and Bond Premium Amortization in chapter 3 of Publication 550, Investment
Income and Expenses.
Certain Casualty and
Theft Losses
You can deduct a casualty or theft loss as a miscellaneous itemized deduction not
subject to the 2% limit if the damaged or stolen property was income-producing property
(property held for investment, such as stocks, notes, bonds, gold, silver, vacant lots,
and works of art). First report the loss in Section B of Form 4684. You may also have to
include the loss on Form 4797 if you are otherwise required to file that form. Your
deduction is the amount of the loss included on lines 32 and 38b of Form 4684 and line
18b(1) of Form 4797. For more information on casualty and theft losses, see chapter 27.
Federal Estate Tax on Income
in Respect of a Decedent
You can deduct the federal estate tax attributable to income in
respect of a decedent that you as a beneficiary include in your gross income.
Income in respect of the decedent is gross income that the decedent would have received
had death not occurred and that was not properly includible in the decedent's final income
tax return. See Publication 559 for more information.
Gambling Losses Up to the
Amount of Gambling Winnings
You must report the full amount of your gambling winnings for the
year on line 21, Form 1040. You deduct your gambling losses for the year on line
27, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your
winnings.
 You cannot
reduce your gambling winnings by your gambling losses and report the difference. You must
report the full amount of your winnings as income and claim your losses up to the amount
of winnings as an itemized deduction. Therefore, your records should show your winnings
separately from your losses.
 Diary of
winnings and losses. You must keep an accurate
diary or similar record of your losses and winnings.
Your diary should contain at least the following information.
- The date and type of your specific wager or wagering activity.
- The name and address or location of the gambling establishment.
- The names of other persons present with you at the gambling establishment.
- The amount(s) you won or lost.
See Publication 529 for more information.
Impairment-Related
Work Expenses
If you have a physical or mental disability that limits your being
employed, or substantially limits one or more of your major life activities, such
as performing manual tasks, walking, speaking, breathing, learning, and working, you can
deduct your impairment-related work expenses.
Impairment-related work expenses are ordinary and necessary business expenses for
attendant care services at your place of work and other expenses in connection with your
place of work that are necessary for you to be able to work.
Where to report. If you are an employee, you enter
impairment-related work expenses on Form 2106 or Form 2106-EZ. Enter on line 27, Schedule
A (Form 1040) that part of the amount on line 10 of Form 2106, or line 6 of Form 2106-EZ,
that is related to your impairment. Enter the amount that is unrelated to your impairment
on line 20, Schedule A (Form 1040).
Repayments Under
Claim of Right
If you had to repay more than $3,000 that you included in your income
in an earlier year because at the time you thought you had an unrestricted right to
it, you may be able to deduct the amount you repaid or take a credit against your tax. See
Repayments in chapter 13 for more information.
Unrecovered Investment
in Annuity
A retiree who contributed to the cost of an annuity can exclude from
income a part of each payment received as a tax-free return of the retiree's
investment. If the retiree dies before the entire investment is recovered tax free, any
unrecovered investment can be deducted on the retiree's final income tax return. See
chapter 11 for more information about the tax treatment of pensions and annuities.
Officials Paid on
a Fee Basis
If you are a fee-basis official, you can claim your expenses in
performing services in that job as an adjustment to income rather than as a
miscellaneous itemized deduction. To qualify as a fee-basis official, you must be employed
by a state or local government and be paid in whole or in part on a fee basis.
Where to report. If you qualify as a fee-basis official, you should
first complete Form 2106 or Form 2106-EZ. Then include your expenses in performing
services in that job (line 10 of Form 2106 or line 6 of Form 2106-EZ) on line 34 of Form
1040. Then write FBO and the amount of those expenses on the dotted line next to
line 34 of Form 1040.
Nondeductible Expenses
Examples of nondeductible expenses are listed next. The list is followed by discussions
of additional nondeductible expenses.
List of Nondeductible Expenses
- Broker's commissions that you paid in connection with your IRA or other investment
property.
- Burial or funeral expenses, including the cost of a cemetery lot.
- Capital expenses.
- Fees and licenses, such as car licenses, marriage licenses, and dog
tags.
- Hobby losses - but see Hobby Expenses, earlier.
- Home repairs, insurance, and rent.
- Illegal bribes and kickbacks - see Bribes and kickbacks in
chapter 13 of Publication 535.
- Losses from the sale of your home, furniture, personal car, etc.
- Personal disability insurance premiums.
- Personal, living, or family expenses.
- The value of wages never received or lost vacation time.
Adoption Expenses
You cannot deduct the expenses of adopting a child, but you may be able to take a
credit for those expenses. See chapter 38.
Campaign Expenses
You cannot deduct campaign expenses of a candidate for any office,
even if the candidate is running for reelection to the office. These include
qualification and registration fees for primary elections.
Legal fees. You cannot deduct legal fees paid to defend
charges that arise from participation in a political campaign.
Check-Writing Fees
on Personal Account
If you have a personal checking account, you cannot deduct fees
charged by the bank for the privilege of writing checks, even if the account pays
interest.
Club Dues
Generally, you cannot deduct the cost of membership in any club
organized for business, pleasure, recreation, or other social purpose. This
includes business, social, athletic, luncheon, sporting, airline, hotel, golf, and country
clubs. For exceptions, see Dues to Chambers of Commerce and Professional Societies under
Unreimbursed Employee Expenses, earlier.
Commuting Expenses
You cannot deduct commuting expenses (the cost of transportation
between your home and your main or regular place of work). If you haul tools,
instruments, or other items, in your car to and from work, you can deduct only the
additional cost of hauling the items such as the rent on a trailer to carry the items.
Fines or Penalties
You cannot deduct fines or penalties you pay to a governmental unit
for violating a law. This includes an amount paid in settlement of your actual or
potential liability for a fine or penalty (civil or criminal). Fines or penalties include
parking tickets, tax penalties, and penalties deducted from teachers' paychecks after an
illegal strike.
Health Spa Expenses
You cannot deduct health spa expenses, even if there is a job requirement to stay in
excellent physical condition, such as might be required of a law enforcement officer.
Home Security System
You cannot deduct the cost of a home security system as a
miscellaneous deduction. However, you may be able to claim a deduction for a home
security system as a business expense if you have a home office. See Home Office under
Unreimbursed Employee Expenses, earlier, and Security System under
Deducting Expenses in Publication 587.
Homeowners' Insurance Premiums
You cannot deduct premiums that you pay or that are placed in escrow
for insurance on your home, such as fire and liability or mortgage insurance.
Investment-Related Seminars
You cannot deduct any expenses for attending a convention, seminar, or similar meeting
for investment purposes.
Life Insurance Premiums
You cannot deduct premiums you pay on your life insurance. You
may be able to deduct, as alimony, premiums you pay on life insurance policies assigned to
your former spouse. See chapter 20 for information on alimony.
Lobbying Expenses
You generally cannot deduct amounts paid or incurred for lobbying
expenses. These include expenses to:
- Influence legislation,
- Participate or intervene in any political campaign for, or against, any candidate for
public office,
- Attempt to influence the general public, or segments of the public, about elections,
legislative matters, or referendums, or
- Communicate directly with covered executive branch officials in any attempt to influence
the official actions or positions of those officials.
Lobbying expenses also include any amounts paid or incurred for research, preparation,
planning, or coordination of any of these activities.
Dues used for lobbying. If a tax-exempt organization
notifies you that part of the dues or other amounts you pay to the organization are used
to pay nondeductible lobbying expenses, you cannot deduct that part. See Lobbying
Expenses in Publication 529 for information on exceptions.
Lost or Mislaid
Cash or Property
You cannot deduct a loss based on the mere disappearance of money or
property. However, an accidental loss or disappearance of property can qualify as a
casualty if it results from an identifiable event that is sudden, unexpected, or unusual.
See chapter 27.
Example. A car door is accidentally slammed on your hand,
breaking the setting of your diamond ring. The diamond falls from the ring and is never
found. The loss of the diamond is a casualty.
Lunches With Coworkers
You cannot deduct the expenses of lunches with co-workers, except while traveling away
from home on business. See chapter 28 for information on deductible expenses while
traveling away from home.
Meals While Working Late
You cannot deduct the cost of meals while working late. However, you may be able to
claim a deduction if the cost of meals is a deductible entertainment expense, or if you
are traveling away from home. See chapter 28 for information on deductible entertainment
expenses and expenses while traveling away from home.
Personal Legal Expenses
You cannot deduct personal legal expenses such as those for the
following.
- Custody of children.
- Breach of promise (to marry) suit.
- Civil or criminal charges resulting from a personal relationship.
- Damages for personal injury.
- Preparation of a title (or defense or perfection of a title).
- Preparation of a will.
- Property claims or property settlement in a divorce.
You cannot deduct these expenses even if a result of the legal proceeding is the loss
of income-producing property.
Political Contributions
You cannot deduct contributions made to a political candidate, a
campaign committee, or a newsletter fund. Advertisements in convention bulletins
and admissions to dinners or programs that benefit a political party or political
candidate are not deductible.
Professional Accreditation Fees
You cannot deduct professional accreditation fees such as the following.
- Accounting certificate fees paid for the initial right to practice accounting.
- Bar exam fees and incidental expenses in securing admission to the bar.
- Medical and dental license fees paid to get initial licensing.
Professional Reputation
You cannot deduct expenses of radio and TV appearances to increase your personal
prestige or establish your professional reputation.
Relief Fund Contributions
You cannot deduct contributions paid to a private plan that pays benefits to any
covered employee who cannot work because of any injury or illness not related to the job.
Residential Telephone Service
You cannot deduct any charge (including taxes) for basic local
telephone service for the first telephone line to your residence, even if it is used
in a trade or business.
Stockholders' Meetings
You cannot deduct transportation and other expenses you pay to attend
stockholders' meetings of companies in which you own stock but have no other
interest. You cannot deduct these expenses even if you are attending the meeting to get
information that would be useful in making further investments.
Tax-Exempt Income Expenses
You cannot deduct expenses to produce tax-exempt income. You
cannot deduct interest on a debt incurred or continued to buy or carry
tax-exempt securities.
If you have expenses to produce both taxable and tax-exempt income, but you cannot
identify the expenses that produce each type of income, you must divide the expenses based
on the amount of each type of income to determine the amount that you can deduct.
Example. During the year, you received taxable interest of
$4,800 and tax-exempt interest of $1,200. In earning this income, you had total expenses
of $500 during the year. You cannot identify the amount of each expense item that is for
each income item. Therefore, 80% ($4,800/$6,000) of the expense is for the taxable
interest and 20% ($1,200/$6,000) is for the tax-exempt interest. You can deduct, subject
to the 2% limit, expenses of $400 (80% of $500).
Travel Expenses for
Another Individual
You generally cannot deduct travel expenses you pay or incur for a
spouse, dependent, or other individual who accompanies you (or your employee) on
business travel. See chapter 28 for more information on deductible travel expenses.
Voluntary Unemployment
Benefit Fund Contributions
You cannot deduct voluntary unemployment benefit fund contributions you make to a union
fund or a private fund. However, you can deduct contributions as taxes if state law
requires you to make them to a state unemployment fund that covers you for the loss of
wages from unemployment caused by business conditions.
Wristwatches
You cannot deduct the cost of a wristwatch, even if there is a job
requirement that you know the correct time to properly perform your duties.
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