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 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.

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 32 of Form 1040. Then write "FBO" and the amount of those expenses on the dotted line next to line 32 of Form 1040.

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