The 2 Percent Limit

All of the miscellaneous itemized deductions we've discussed so far are subject to the 2 percent of adjusted gross income (AGI) limit. That is, you must total up all your allowable expenses, and subtract 2 percent of your AGI as shown on Line 37 of your Form 1040. If anything remains, that is the amount you can deduct as an itemized deduction on Line 27 of Schedule A.

There are a few types of miscellaneous deductions that are not subject to the 2 percent limit. If you have any of these, they are totaled up and reported on Line 28 of your Schedule A. They are:

• amortizable premiums on taxable bonds
• federal estate tax that was paid on income in respect of a decedent
• gambling losses, up to the amount of gambling winnings (the full amount of winnings are reported as income on Line 21 of Form 1040)
• impairment-related work expenses of persons with disabilities
• repayments you had to make of income you reported in earlier years, if more than $3,000
• unrecovered investment in a pension