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Navigating Miscellaneous Itemized Deductions

Taxpayers who itemize deductions are entitled to some commonly overlooked miscellaneous deductions. Most types of miscellaneous deductions are only tax-deductible to the extent their total exceeds 2 percent of adjusted gross income. However, some expenses are not subject to this limitation.

Author: Sawyer Adams
Date: Jan 9, 2011 - 2:22:00 PM


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Taxpayers who itemize deductions are entitled to some commonly overlooked miscellaneous deductions. Most types of miscellaneous deductions are only tax-deductible to the extent their total exceeds 2 percent of adjusted gross income. However, some expenses are not subject to this limitation.

Tax professionals with an EA license have extensive knowledge to help taxpayers identify and deduct these expenses. Miscellaneous itemized deductions not subject to the 2 percent AGI limit are reported on line 27 of Schedule A.

A frequently neglected tax deduction that's well know by those completing enrolled agent CE is casualty and theft losses on investment property. This includes art works, precious metals, securities, and even vacant land. Other types of personal property qualify for casualty and theft losses on another section of Schedule A.

Theft or casualty loss of investment property is first reported on Form 4684 and then on Schedule A as a miscellaneous deduction. Business property loss or theft is reported on Form 4797. Property used to perform services as an employee is not included here because it is subject to the 2 percent AGI limitation.

Investors may amortize as a tax deduction the premium paid to purchase a bond in excess of its face amount. In fact, for bonds acquired after 1998, a taxpayer can deduct the bond premium amortization that exceeds interest income. A deduction is not available for amortizing of premiums paid on bonds acquired before 1998 to the extent that the amortization exceeds interest income. Different rules apply to bonds acquired before 1986 and between 1986 and 1988. Taxpayers with these circumstances greatly benefit from the services of professionals with tax agent course training.

A miscellaneous deduction is sometimes available on the final tax return of decedents who were recipients of annuity payments. The portion of annuity payments that represents a return of invested funds is not taxable to recipients. When an annuitant dies before having fully recovered all invested premiums, the amount not received at death is a miscellaneous itemized deduction.

Another miscellaneous itemized deduction is legally enforced repayment of amounts previously reported as taxable income. Although the first $3,000 repaid is subject to the 2 percent AGI limitation, any excess over that figure is not subject to the limitation.

Although most employee expenses are subject to the 2 percent AGI limitation, there is one related category that is not limited. That is, a full deduction is available for expenses incurred in order to perform work by individuals with physical or mental disabilities. The disability must limit a taxpayer's ability to obtain employment or perform a major life activity. Expenses related to this impairment are not subject to the 2 percent AGI limitation.

The section for miscellaneous itemized deductions is also the place for reporting gambling losses. No tax deduction is permitted for gambling losses that exceed gambling winnings. An important aspect of enrolled agent ethics is helping taxpayers understand this limitation and not violate it. When gambling winnings are reported as other income on an individual's tax return, gambling losses-up to that amount of winnings-may be reported as a miscellaneous deduction not subject to the 2 percent AGI limit.

Taxpayers can avoid confusion about reporting casualty and theft loss by relying upon the expertise of enrolled agents. These tax professionals can be located with assistance of the National Association of Enrolled Agents. NAEA CPE is even more rigorous than IRS requirements, thus providing members with a high level of tax knowledge.



View all articles by Sawyer Adams

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