Deductions and Credits · Itemized deductions and QBI

Other itemized deductions

Since 2018 this topic has been defined by exclusion. Section 67(h) allows no miscellaneous itemized deduction, and § 67(b) defines a miscellaneous itemized deduction as any itemized deduction other than thirteen listed classes. So the list in § 67(b) is not a set of special rules — it is the complete inventory of itemized deductions that still exist. Anything not on it is allowed nowhere, and Pub. L. 119-21 made that permanent.

The rule

The definition, and what it leaves. Miscellaneous itemized deductions means the itemized deductions other than the deductions under § 163 (interest), § 164 (taxes), § 165(a) for casualty or theft losses within § 165(c)(2) or (3) or for losses within § 165(d), §§ 170 and 642(c) (charitable contributions), § 213 (medical), impairment-related work expenses, § 691(c) (estate tax on income in respect of a decedent), expenses in connection with personal property used in a short sale, § 1341 (claim of right), § 72(b)(3) (unrecovered investment in an annuity), § 171 (amortizable bond premium), § 216 (cooperative housing), and § 162 educator expenses (IRC § 67(b)(1)–(13)).

And everything else is disallowed. Notwithstanding § 67(a), no miscellaneous itemized deduction is allowed for any taxable year beginning after 31 December 2017 (IRC § 67(h)) — with the end date struck and the subsection redesignated by Pub. L. 119-21 § 70110.

Gambling losses are on the list. Section 67(b)(3) covers losses described in § 165(d), so wagering losses are an itemized deduction and are not miscellaneous — but they remain subject to the § 165(d) ceiling, which Pub. L. 119-21 § 70114(a) rewrote.

Impairment-related work expenses are defined narrowly. Expenses of a handicapped individual within § 190(b)(3) for attendant care services at the place of employment, and other expenses in connection with that place of employment which are necessary for the individual to be able to work, for which a deduction is allowable under § 162 determined without regard to § 67 (IRC § 67(d)(1), (2)). They are deductible in full, without a floor.

The estate tax deduction for income in respect of a decedent. A person who includes an amount in gross income under § 691(a) is allowed, for the same year, a deduction bearing the same ratio to the estate tax attributable to the net value of all § 691(a)(1) items as the estate tax value of the items included bears to the value of all such items (IRC § 691(c)(1)(A)).

Claim of right is a tax computation, not just a deduction. Where an item was included in gross income in a prior year because it appeared the taxpayer had an unrestricted right to it, a deduction becomes allowable because that proved wrong, and the deduction exceeds the statutory floor, the tax for the year is the lesser of the tax computed with the deduction, or the tax computed without it minus the decrease in the prior year’s tax that would have resulted from excluding the item (IRC § 1341(a)(4), (5)).

Current figures

How it works in practice

Work from the list, not from intuition. The question is never “is this expense reasonable and connected with producing income” — it is “is this expense within one of the thirteen classes in § 67(b)”. Investment advisory fees, unreimbursed employee expenses, tax preparation fees, safe deposit boxes, hobby expenses and legal fees for producing income were all deductible before 2018 and are all now allowed nowhere.

Two entries on the list are frequently overlooked. The § 691(c) deduction is often missed by a beneficiary receiving a large item of income in respect of a decedent from a taxable estate — it can be substantial and is claimed in the year the income is included, not the year of death. And impairment-related work expenses are deductible in full, which makes the § 67(d) definition worth checking rather than assuming that a disabled employee’s costs fall into the disallowed employee expense category.

Section 1341 is not really a deduction provision at all: it is an alternative tax computation, and it usually produces a better answer than the deduction alone precisely because the prior-year rate was higher. Compute both figures and take the lower — the statute requires it, and the taxpayer does not elect.

Note what the list does not do. It does not remove the other limits: gambling losses stay within § 165(d), medical stays behind the § 213 floor, taxes stay within the § 164 cap, and charitable contributions now stay above the § 170(b)(1)(I) floor. Surviving the § 67 definition is a threshold question, not an allowance.

How this has changed

The suspension became permanent in 2025 and the subsection moved. Pub. L. 119-21 § 70110(a) struck the “before January 1, 2026” limitation and § 70110(b) redesignated the provision as § 67(h), with a new § 67(g) — defining educator expenses — occupying the old address. Two consequences: waiting for the deductions to return is no longer a plan, and any citation to ”§ 67(g)” for the disallowance now points at a provision about something else entirely.

The 2 percent floor in § 67(a) is still in the statute and does nothing. It survives untouched as the subsection the disallowance overrides. A reader who finds § 67(a) first will conclude that miscellaneous itemized deductions are allowed above a floor, which has not been true since 2017 — the operative rule is three subsections further down.

The § 67(b) list itself has been stable, and it is worth appreciating what that stability now means. The list was written in 1986 to identify deductions that should escape a 2 percent floor. Since 2018 it has done something entirely different: it defines which itemized deductions exist. A drafting device has become the operative rule, and its thirteen entries were never chosen for that purpose.

Educator expenses were added to the list in 2015 and are the only entry that reaches an ordinary employee expense. Everything else an employee spends on their job is now disallowed, which is why § 67(b)(13) and the § 67(d) impairment-related class stand out — they are the two narrow survivors of a category that has otherwise gone.

Exam focus

Expect a list of expenses with one or two survivors among several disallowed items. Work from § 67(b).

Expect gambling losses offered as disallowed. They are on the list, subject to their own ceiling.

Expect § 1341 described as a deduction, where the answer is the lesser-of computation.

Expect § 691(c) in a fact pattern about inherited income, where the deduction is easy to overlook.

Check yourself

1. A taxpayer pays 5,000 dollars in investment management fees in 2026. How much is deductible?

Answer: None. The fees are not within the IRC § 67(b) list, so they are miscellaneous itemized deductions, and § 67(h) allows no miscellaneous itemized deduction for any taxable year beginning after 2017 — permanently, since Pub. L. 119-21 § 70110 struck the end date.

2. Are gambling losses miscellaneous itemized deductions?

Answer: No. IRC § 67(b)(3) excludes losses described in § 165(d) from the definition, so they survive the disallowance — though they remain subject to the § 165(d) ceiling.

3. A beneficiary includes 120,000 dollars of income in respect of a decedent in 2026. What deduction may be available?

Answer: The IRC § 691(c)(1)(A) deduction for the federal estate tax attributable to that item, claimed in the year of inclusion and preserved from the disallowance by § 67(b)(7).

4. A taxpayer repays 50,000 dollars in 2026 that was taxed in 2022. What does IRC § 1341 provide?

Answer: The tax for 2026 is the lesser of the tax computed with the deduction, or the tax computed without it reduced by the decrease in the 2022 tax that excluding the item would have produced (§ 1341(a)(4), (5)) — a computation, not an election.

5. Why does the § 67(b) list matter more now than when it was written?

Answer: Because § 67(h) disallows every itemized deduction that is not on it. The list was drafted in 1986 to identify deductions escaping a 2 percent floor; since 2018 it has defined which itemized deductions exist at all.