8527 / What are miscellaneous itemized deductions? To what extent are they deductible?
“Miscellaneous itemized deductions” are a subset of itemized deductions other than the regular itemized deductions for (1) interest, (2) taxes, (3) non-business casualty losses and gambling losses, (4) charitable contributions, (5) medical and dental expenses, (6) impairment-related work expenses for handicapped employees, (7) estate taxes on income in respect of a decedent, (8) certain short sale expenses, (9) certain adjustments under the IRC claim of right provisions, (10) unrecovered investment in an annuity contract, (11) amortizable bond premium, and
(12) certain expenses of cooperative housing corporations.1
Examples of miscellaneous itemized deductions include unreimbursed employee business expenses, such as professional society dues or job hunting expenses, and expenses for the production of income, such as investment advisory fees or the cost for storage of taxable securities in a safe deposit box.2
“Miscellaneous itemized deductions” are included in the itemized deduction pool only to the extent that the aggregate of all miscellaneous itemized deductions for the tax year exceeds 2 percent of adjusted gross income.3 Expenses that relate to both a trade or business activity (an above-the-line deduction) and a production of income or tax preparation activity must be allocated between the activities on a reasonable basis.4
Example: In 2017 (pre-reform), Henry, a single taxpayer, has adjusted gross income of $100,000. His deductible mortgage interest and property taxes (regular itemized deductions) total $4,050. In addition, Henry has unreimbursed employee business expenses of $2,500. Because unreimbursed employee business expenses are miscellaneous itemized deductions, they are deductible and added to the total of Henry’s other regular itemized deductions only to extent they exceed 2 percent of his adjusted gross income. In this case, Henry’s miscellaneous itemized deductions of $2,500 exceed $2,000 (2 percent of adjusted gross income) by $500. As a result, Henry’s total itemized deductions would be $4,550 ($4,050 plus $500). However, because the standard deduction for a single filer was $6,350, Henry would deduct the higher standard deduction amount.