Expenses That Are Not Subject to 2% Deduction Limit

July 19, 2012 | By: TaxCure Staff

tax deductions not subject to 2 percentThere are several types of miscellaneous tax deductions that are not subject to the adjusted gross income 2 percent limit. These deductions can be listed as miscellaneous itemized deductions:

  • Gambling Losses: Gambling losses are subject to strict itemization. Any gambling winnings are reported on a different line than your gambling losses. It is not legal to subtract your losses from your winnings and to report only that number. If your gambling losses add up to more than your gambling winnings, the difference between the two is not tax-deductible.
  • Amortizable Premium on Taxable Bonds: If you pay more for a bond than the principal amount was stated for the bond, the extra expense was the premium for that bond. For taxable bonds, you are allowed to choose to amortize this premium. However, this is usually not a deduction but allows you to offset the interest earned by the bond. In some cases, some of the bonds the premium may be eligible as a miscellaneous deduction that isn’t included in the 2 percent limit rule. There are strict rules too depending on when the bond was required to see the IRS website for more information.
  • Work Expenses Related to Impairments: If you have a significant impairment or disability that causes you limitations in employment or other significant parts of your life, the expenses incurred to assist you with the impairment are deductible. These may include attendant care at work, equipment needed to assist you with your impairment, and other expenses related to assisting you with your impairment at work.
  • The Claim of Right Repayments: If you repaid greater than $3,000 that had been included in your income in the past year because you believed at the time you were owed that amount, that amount that was repaid may be deductible. You can also take this amount as a credit against taxes owed.
  • Income-Producing Property Theft Losses and Casualties: A theft loss or casualty to an income-producing property is a deduction that isn’t subject to the 2 percent rule. The property may include a vacant lot, and artwork, stocks, bonds, notes, silver, gold, and other items being held as investments.
  • Annuity Investment That Was Unrecovered: When a retiree dies without having received his or her entire investment from an annuity, the unrecovered portion of the investment is eligible as a deduction that isn’t subject to the 2 percent limit. When a retiree has contributed to purchasing an annuity, that retiree can exclude part of each received payment from his or her income.
  • Federal Estate Tax in Respect of a Decedent: As a beneficiary, the federal estate tax paid on an amount of income in respect to a decedent that you include as your own income is deductible. This income is money that was due to be paid to the decedent but was not because of the decedent’s death and that was not included in the final return filed on behalf of the decedent.
  • Other Losses: When the amount in Schedule K-1, Box 2 of Form 1065-B is reported as a loss, this amount is not subject to the 2 percent limit. If you have lost money in an investment scheme such as a Ponzi-style arrangement, this lost amount is also eligible as a deduction that does not fall under the 2 percent rule.