Unbelievable amount of information contained here. Includes IRS Code, Regulations and Court Cases as reference. This is one of the few spots on the entire internet that gives you this kind of information. The time referencing this alone could cost $100's of dollars. This is what people pay us for, our knowledge, which we gladly share with other tax professionals.

A

Abandonment. A loss resulting from abandonment of business or investment property is deductible as an ordinary loss, even if the property is a capital asset. The amount of the loss is the property's adjusted basis at the time of abandonment. Citron v. Commissioner, 97 T.C. 200 (1991).

Abnormal retirement. A taxpayer may claim a loss deduction for the abnormal retirement or property used in a trade or business, which occurs when the asset is withdrawn earlier than the taxpayer customarily retires similar assets or under other circumstances such as when an asset is damaged by a casualty or suddenly lost its usefulness as the result of an extraordinary obsolescence. Reg. Section 1.167(a)-8.

Abortion. The cost of legal abortion is deductible as a medical expense. Rev. Rul. 73-201, 1973-1 C.B. 140.

Accident insurance. In the case of an insurance contract under which amounts are payable for other than medical care (such as a policy providing an indemnity for loss of income or for loss of life, limb, or sight), no amount shall be treated as paid for insurance covering expenses of medical care unless the charge for such insurance is separately stated, either in the contract or in a separate statement. Reg. Section 1.213-1(e)(4)(i).

Accidents. A car accident may result in a deductible casualty loss, unless the accident is caused by the willful negligence or willful neglect of the taxpayer or another person operating the taxpayer's car. Reg. Section 1.165-7(a)(3).

Accidental breakage. Accidentally breaking articles such as glassware or china under normal conditions does not give rise to a deductible casualty loss. Diggs v. Commissioner, T.C. Memo. 1959-99, aff'd, 281 F.2d 326 (2d Cir. 1960), cert. denied, 364 U.S. 908 (1960).

Accounting certificate fees. No deduction is allowed for professional accreditation fees such as accounting certificate fees paid for the initial right to practice accounting, bar exam fees, and medical and dental licensing fees paid to get initial licensing. Reg. Section 1.162-5(b).

Accounting fees. An individual taxpayer can deduct, as miscellaneous itemized deductions subject to the 2 percent floor, accounting fees that are paid or incurred for the production or collection of income; for the management, conservation, or maintenance of property held for the production of income; or in connection with the determination, collection, or refund of any tax. Code Section 212.

Acupuncture. The cost of acupuncture services may be deductible as a medical expense. Rev. Rul. 72-593, 1972-2 C.B. 180.

Administrative fees. Administrative fees paid to the trustee of a pension plan in which the taxpayer is a participant are deductible as investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. TAM 9001002. Similarly, IRA administration fees in excess of the maximum amount deductible for IRA contributions are deductible as expenses for the production of income subject to the 2 percent floor on miscellaneous itemized deductions if they are billed and paid separately. Rev. Rul. 84-146, 1984-2 C.B. 61.

Admission – Charitable benefit event. If a taxpayer pays a qualified charitable organization more than the fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, the taxpayer may deduct the amount paid above the fair market value of the privileges or other benefits received. Reg. Section 1.170A-1(h)(2).

Admission – Political event. No deduction is allowed for the cost of admission to any dinner or program, if any part of the proceeds of such event directly or indirectly inures to or for the use of a political party or a political candidate. Reg. Section 1.276-1(d).

Adoption expenses. Adoption expenses are non-deductible personal expenses. Although an adoption services agency may be a qualified charitable organization, amounts paid to the agency for services rendered by the agency to the payors are not deductible charitable contributions. Arceneaux v. Commissioner, T.C. Memo. 1977-363.

NOTE: An individual may be able to claim a tax credit for qualified adoption expenses or exclude from income amounts reimbursed by the individual's employer for qualifying adoption expenses under an adoption assistance program. Code Sections 23, 137.

Advertising display on car. Putting display material that advertises a business on the taxpayer's car does not change the use of the car from personal to business use; thus, personal uses of the car such as commuting still are non-deductible. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Advice on investments. Fees paid for counsel and advice about investments that produce taxable income, including investment advisory services, are deductible investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.212-1(g).

Affinity credit card. A taxpayer who uses a brand-name affinity credit card and can either receive rebates personally or donate them to charity can claim a charitable contribution deduction for the amount of the donated rebates only if the taxpayer makes an affirmative election to donate the rebates to charity. PLR 200228001.

Air cleaner. The cost of installing and operating an electronic air cleaner pursuant to a doctor's recommendation for the alleviation of an illness such as allergies, may constitute a deductible medical expense only to the extent that the cost exceeds the amount that would be required in the absence of the medical condition. Gardner v. Commissioner, T.C. Memo. 1983-541.

Air conditioning. An air-conditioning device that has been installed in the taxpayer's residence for the alleviation of an illness is deductible as a medical expense, as long as it is purchased only for the use of the sick person and does not become a permanent part of the dwelling. Reg. Section 1.213-1(e)(1)(iii). A permanent central air conditioning unit installed for medical reasons is deductible only to the extent that its cost exceeds the increase in value to the home. Gerard v. Commissioner, 37 T.C. 826 (1962).

Airplane crash. An airplane crash can cause a deductible personal casualty loss. Publication 225, Farmer's Tax Guide.

Airplane fares – Business travel. The costs of air, rail, and bus transportation incurred in a taxpayer's work may be deductible unreimbursed employee travel expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-2(a).

Airplane fares – Medical transportation. Transportation primarily for, and essential to, medical care may be deductible as a medical expense. Code Section 213(d)(1)(B).

Airport limousine. A taxpayer traveling away from home for business purposes may deduct as unreimbursed employee travel expenses subject to the 2 percent floor on miscellaneous itemized deductions the cost of traveling by taxi, commuter bus, airport limousine, or other transport services between the airport or station and the taxpayer's hotel. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Alcohol abuse treatment. The cost of treatment, including meals and lodging, at a therapeutic center for alcoholism is a medical expense. Rev. Rul. 73-325, 1973-2 C.B. 75.

Alcoholics Anonymous. Transportation costs paid to attend local meetings of an Alcoholics Anonymous club are deductible as medical expenses if the taxpayer's attendance is pursuant to medical advice that membership in Alcoholics Anonymous is necessary for the treatment of a disease involving the excessive use of alcohol. Rev. Rul. 63-273, 1963-2 C.B. 112.

Alimony. Attorney fees and other legal expenses incurred to collect taxable alimony are deductible subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.262-1(b)(7).

NOTE: Alimony or separate maintenance payments (payments made to or for a spouse or former spouse under a divorce or separation decree), may be deductible above the line. Code Section 215(a). This is true even if the payments are made to a foreign recipient who does not have to include the payments in income under a tax treaty. CCM 200251004.

American Depository Shares. American Depository Shares may qualify as qualified appreciated stock for purposes of the charitable contribution deduction. PLR 200322005.

Ambulance. The cost of ambulance hire essential to the receipt of medical services is deductible as a medical expense. Reg. Section 1.213-1(e)(1)(ii).

Amortizable premium on taxable bonds. If the amount paid for a bond is greater than its stated principal amount, the excess is an amortizable bond premium. Part of the premium on some bonds may be a miscellaneous itemized deduction not subject to the 2 percent limit. Code Section 67(b)(11).

Animals. The cost and care of guide dogs and other animals aiding the blind, deaf, and disabled are deductible as a medical expense. Reg. Section 1.213-1(e)(1)(iii) (seeing eye dog); Rev. Rul. 68-295, 1968-1 C.B. 92 (dog to assist deaf person); Rev. Rul. 55-261, 1955-1 C.B. 307 (seeing eye dog).

Annuity. If the cost of a taxpayer's annuity has not been fully recovered by the time of the taxpayer's (or survivor annuitant's) death, the unrecovered investment can be deducted on the taxpayer's final income tax return as a miscellaneous itemized deduction not subject to the 2 percent floor. Code Section 72(b)(3)(A).

Antifreeze. Damage to an automobile due to an absence or an insufficient amount of antifreeze in the automobile is a personal loss, rather than a deductible casualty loss because the event does not involve the application of a destructive force that is the proximate cause of the loss and does not embody the requisite element of chance, accident, or contingency. Mohiuddin v. Commissioner, T.C. Memo. 1996-422.

Antiques. A taxpayer who donates antiques to a qualified organization may claim a charitable contribution deduction for the fair market value of the antiques, provided that deductions in excess of $5,000 are supported by a written appraisal from a qualified and reputable source. Rev. Proc. 66-49, 1966-2 C.B. 1257.

Apartment rental. The cost of renting an apartment for the taxpayer's son, upon the advice of a psychiatrist that it would be therapeutic for him to have the responsibility of caring for himself, is not deductible as a medical expense. PLR 8651055.

Appraisal fees. Appraisal fees are deductible subject to the 2 percent floor on miscellaneous itemized deductions if paid to figure a casualty loss (Rev. Rul. 58-180, 1958-1 C.B. 153), or the fair market value of property donated to a charitable organization (Rev. Rul. 67-461, 1967-2 C.B. 125).

Appreciated stock. A taxpayer who makes a charitable contribution consisting of stock or other property that has increased in value may claim a deduction for the fair market value of the stock on the date of the donation, reduced by the amount of gain that would have been recognized if the property had been sold at its fair market value at the time of the contribution. Code Section 170(e)(1)(A).

Archeological dig. A taxpayer who works for several hours each morning on an archeological dig sponsored by a charitable organization, with the rest of the day free for recreation and sightseeing, cannot take a charitable contribution deduction, because no charitable contribution deduction for travel expenses incurred while away from home performing services for a charitable organization is permitted if there is a significant element of personal pleasure, recreation, or vacation in the travel or if the taxpayer's duties are nominal. IRS Pub. 526, Charitable Contributions.

Archer MSA. Although amounts distributed from an Archer MSA (formerly called a Medical Savings Account), and used exclusively to pay for qualified medical expenses of the account holder are not included in gross income, expenses paid with a tax-free MSA distribution are not deductible as medical expenses. Code Section 220(f)(6).

NOTE: A taxpayer who is self-employed or who works for a small employer and has a high deductible health plan can deduct contributions to an Archer MSA above the line in arriving at adjusted gross income. Code Section 220(a). Contributions by the taxpayer's employer are excludable from income. Code Section 106(b).

Architectural expenses. A taxpayer may elect to deduct up to $15,000 per year of architectural and transportation barrier removal expenses incurred for the purpose of making any facility or public transportation vehicle owned or leased by the taxpayer for use in his trade or business more accessible to and usable by handicapped and elderly individuals. Code Section 190(a).

NOTE: Alternatively, an eligible small business that pays or incurs expenses to provide access to persons with disabilities in order to comply with the Americans with Disabilities Act of 1990 may claim a tax credit for 50 percent of its eligible access expenditures for the year that exceed $250, but do not exceed $10,250. Code Section 44(a).

Artificial limbs. The cost of an artificial limb is deductible as a medical expense. Rev. Rul. 55-261, 1955-1 C.B. 307.

Artificial teeth. The cost of artificial teeth is a deductible medical expense. Reg. Section 1.213-1(e)(1)(ii).

Artwork - Donated by the artist. An artist who donates artwork he created to a qualified charity is only allowed a charitable contribution deduction for the cost to create the artwork, excluding the value of the artist's work. Code Section 1.170A-4(b).

Artwork - Donated by taxpayer other than its artist. A taxpayer who donates works of art to a qualified organization may claim a charitable contribution deduction for the fair market value of the artwork, if the doneeorganization uses the artwork in a way that is related to the purpose or function constituting the basis for its exemption. Code Section 170(e)(1). The contribution must be supported by a written appraisal from a qualified and reputable source unless the amount claimed is $5,000 or less. Reg. Section 1.170A-13(c)(1).

CAUTION: If the organization does not use the artwork in a way that is related to the purpose or function constituting the basis for its exemption, the donor may deduct only the fair market value of the artwork less any capital gain that would have been realized if the artwork had been sold at the time it was donated to the organization. Code 170(e)(1).

Assessment. An assessment for local benefits that increases the value of the taxpayer's property such as the construction of streets, sidewalks, or water and sewer systems, generally is not a deductible tax. Reg. Section 1.164-2(g). However, assessments for local benefits are deductible if they are for maintenance, repair, or interest charges related to those benefits such as a charge to repair an existing sidewalk and any interest included in that charge. Reg. Section 1.164-4(b)(1).

At-risk rules. Individual taxpayers generally are entitled to a loss deduction for an activity only to the extent they are "at risk" in the activity. Code Section 465(a).

Athletes - Travel expenses. In general, the tax home of athletes playing for a professional sports franchise is the home city of the franchise. Therefore, they can only deduct, as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions, expenses incurred while they are playing away from the franchise home city even though their personal residence may not be there.

TIP: If being a professional athlete is not an athlete’s only trade or business, he may be away from home during the entire season. In that case, all his travel and living expenses, not only those while away from their franchise's home city, are deductible. Rev. Rul. 54-147, 1954-1 C.B. 51.

Athletic clubs. No deduction is permitted for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purposes. Code Section 274(a)(3). Clubs organized for business, pleasure, or other social purposes include, but are not limited to, country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussion. Reg. Section 1.274-2(a)(2)(iii)(a).

Attorney fees - Collection or production of income. Attorney fees are deductible as miscellaneous itemized deductions subject to the 2 percent floor if incurred in attempting to produce or collect taxable income or in connection with the determination, collection, or refund of any tax. Reg. Section 1.212-1(l).

Attorney fees - Divorce and alimony. Although attorney fees relating to divorce generally are non-deductible personal expenses, the expenses of legal advice relating to the tax consequences of a divorce are deductible as miscellaneous itemized deductions subject to the 2 percent floor if the bill specifies how much is for tax advice and the determination of that amount is done in a reasonable way. Rev. Rul. 72-545, 1972-2 C.B. 179. Further, attorney fees are deductible as expenses for the production of income subject to the 2 percent floor on miscellaneous itemized deductions if they are paid or incurred to collect taxable alimony. Reg. Section 1.262-1(b)(7).

Attorney fees - Job related. Attorney fees are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if related to either doing or keeping the taxpayer's job such as expenses paid to defend against criminal charges arising out of the taxpayer's work. Caspers v. Commissioner, 44 T.C. 411 (1965).

Attorney fees - Mental incapacity. Attorney fees paid in committing the taxpayer's spouse to a mental institution are deductible as medical expenses where, in the absence of that commitment, the patient would not have been able to receive treatment. Gerstacker v. Commissioner, 414 F.2d 448 (6th Cir. 1969).

Attorney fees - Personal. Personal legal expenses are not deductible. United States v. Gilmore, 372 U.S. 39 (1963).

Automatic investment plan. A taxpayer may deduct as an expense for the production or collection of income subject to the 2 percent floor on miscellaneous itemized deductions the monthly service charge paid to a bank to participate in an automatic investment service plan. Under such a plan, the taxpayer instructs the bank to invest a portion of the funds on deposit in an account each month in the common stock of certain specified corporations. Rev. Rul. 75-548, 1975-2 C.B. 331.

Automobile. The fair market value of a car, boat, or aircraft donated to a qualified organization may be deducted as a charitable contribution. SCA 1998-022 (Dec. 4, 1997) (automobiles); Sergeant v. Commissioner, T.C. Memo 1998-265 (boats). The costs of shipping the taxpayer's car from his former home to a new home in a move connected with the start of work in a new location is deductible as a moving expense. Rev. Rul. 65-309, 1965-2 C.B. 77.

Automobile lease payments. A taxpayer can deduct the portion of automobile lease payments attributable to the use of the automobile in her work as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer chooses to deduct his actual expenses. Heuer v. Commissioner, 32 T.C. 947 (1959).

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, leasing expense cannot be deducted separately.

Automobile - Accidents. An automobile accident may result in a deductible casualty loss, unless the accident is caused by the willful negligence or willful neglect of the taxpayer or another person operating the taxpayer's automobile. Reg. Section 1.165-7(a)(3).

Automobile – Business travel. The costs of operating and maintaining an automobile attributable to a taxpayer’s use of the automobile in his work may qualify as deductible unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the automobile is used for business purposes. Heuer v. Commissioner, 32 T.C. 947 (1959). A taxpayer can use his actual expenses to determine his deduction or use the standard mileage rate. The standard mileage rate for determining the deductible costs of operating an automobile for business purposes is 36 cents per mile for 2003 and 37.5 cents per mile for 2004. Actual auto expenses that can be deducted include depreciation, licenses, gas, oil, tolls, lease payments, insurance, garage rent, parking fees, registration fees, repairs, and tires. Rev. Proc. 2002-61, 2002-39 I.R.B. 616; Rev. Proc. 2203-76, 2003-43 I.R.B. __. If a taxpayer's car is furnished by his employer, he can deduct only his actual unreimbursedcar expenses and cannot use the standard mileage rate. Publication 463, Travel, Entertainment, Gift, and Car Expenses.

CAUTION: Commuting expenses (the costs of traveling from the taxpayer's home to his regular place of business), are non-deductible personal expenses. Reg. Section 1.162-2(e); Reg. Section 1.262-1(b)(5); Reg. Section 1.212-1(f).

Automobile – Expenses incurred on behalf of a charity. Out-of-pocket automobile expenses incurred by a taxpayer while performing gratuitous services for a qualified charitable organization qualify for the charitable contribution deduction. Francis v. Commissioner, T.C. Memo. 1988-226. The taxpayer may use a standard mileage rate to determine the amount of the deduction. Code Section 170(i). The standard mileage rate for charitable deduction purposes for 2003 and 2004 is 14 cents per mile. Rev. Proc. 2002-61, 2002-39 I.R.B. 61; Rev. Proc. 2003-76, 2003-43 I.R.B. __.

Automobile - Medical equipment. The cost of an automobile that has been equipped with special equipment to permit a handicapped person to enter and operate the car is deductible as a medical expense, to the extent the cost exceeds the cost of a regular vehicle. Rev. Rul. 66-80, 1966-1 C.B. 57 (hand controls and other modified equipment in car); Rev. Rul. 70-606, 1970-2 C.B. 66 (automobile designed to accommodate wheelchair passengers).

CAUTION: The depreciation on the vehicle cannot be claimed as a medical expense. Pfersching v. Commissioner, T.C. Memo. 1983-341.

Automobile – Medical transportation. Out-of-pocket automobile expenses such as gas and oil, are deductible medical expenses when incurred for medical reasons. Depreciation, insurance, general repair, or maintenance expenses do not qualify for the medical expense deduction. Publication 502, Medical and Dental Expenses. The standard mileage rate may be used instead of actual expenses. The standard mileage rate allowed for out-of-pocket expenses for a taxpayer's use of his car for medical reasons is 12 cents a mile for 2003 and is 14 cents a mile for 2004. Rev. Proc. 2002-61, 2002-39 I.R.B. 61; Rev. Proc. 2003-76, 2003-43 I.R.B. __.

Automobile – Registration. State and local taxes on the registration or licensing of highway motor vehicles are deductible as personal property taxes only if the tax is ad valorem, or substantially in proportion to the value of the motor vehicle, and is imposed on an annual basis. Reg. Section 1.164-3(c)(3). Vehicle license and registration fees may be deducted as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if they are incurred in the course of the taxpayer's work. Rul 74-454, 1974-2 C.B. 57.

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, registration expenses cannot be deducted separately.

B

Babysitting. The cost of babysitting services in order to enable the taxpayer to do unpaid volunteer or charity work is not deductible. Rev. Rul. 73-597, 1973-2 CB 69. The cost of child care is not deductible as a medical expense even if the expense is necessary in order for the taxpayer to receive medical or dental treatment. Rev. Rul. 78-266, 1978-2 C.B. 123.

NOTE: Expenses for household services and for the care of a qualifying individual (a dependent child under the age of 13 or a dependent or spouse who is mentally or physically incapable of self-care), may be eligible for the child and dependent care credit if the expenses are incurred to enable the taxpayer to be gainfully employed. Code Section 21(b)(2)(A).

Bad debts - Business. Business bad debts are fully deductible against ordinary income. Code Sections 166(a)(1), 166(d)(1)(B). A shareholder's loan to a corporation may be a business bad debt if the taxpayer is in the business of promoting, financing, and selling corporations. United States v. Generes, 405 U.S. 93, reh'gdenied, 405 U.S. 1033 (1972). A bad debt, arising out of a loan to a corporation that the taxpayer worked for, was held to be in connection with the taxpayer's trade or business of rendering services for pay and was therefore a business bad debt. Trent v. Commissioner, 291 F.2d 669 (2d Cir. 1961). A taxpayer who adopts the reserve method of treating bad debts may deduct from gross income a reasonable addition to the reserve in lieu of deducting specific bad debt items. Reg. Section 1.166-4(a). A taxpayer other than a bank cannot claim a bad debt deduction due to the worthlessness of any debt owed by a political party, while a bank can claim a bad debt deduction only if the loan was made to the political party in accordance with its usual commercial practices. Reg. Section 1.271-1(a).

Bad Debts - Non-business. Non-business bad debts are deductible by individual taxpayers only as short-term capital losses and only in the year they become totally worthless. Code Sections 166(a)(1), 166(d)(1).

Baggage. The cost of sending baggage and sample or display material between regular and temporary work locations is deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. IRS Pub. 463, Travel, Entertainment and Gift Expenses.

Ballet. The cost of ballet training for an individual suffering from scoliosis is not deductible as a medical expense, even if recommended by the taxpayer's physician and beneficial to the taxpayer's health, unless the expenses would not otherwise have been incurred for non-medical reasons. Ende v. Commissioner, T.C. Memo. 1975-256.

Bandages. The cost of bandages may qualify as a deductible medical expense. Rev. Rul. 2003-58, 2003-22 I.R.B. 959.

Bank deposits. A loss on deposits that occurs when a bank, credit union, or other financial institution becomes insolvent or bankrupt may be deducted as a casualty loss, ordinary loss, or non-business bad debt. Code Section 165(l)(1), (5).

Bank fees. Fees charged by a bank for the privilege of writing checks on a personal checking account cannot be deducted, even if the account pays interest. Rev. Rul. 82-59, 1982-1 C.B. 47. However, a taxpayer may deduct the monthly service charges paid to a bank to participate in an automatic investment service plan as expenses for the production and collection of income subject to the 2 percent floor on miscellaneous itemized deductions. In such a plan, the taxpayer instructs the bank to invest a portion of the funds on deposit in an account each month in a common stock of certain specified corporations. Rev. Rul. 75-548, 1975-2 C.B. 331.

Bar association. A taxpayer may claim an unreimbursed employee expense deduction for dues paid to professional organizations such as bar associations and medical associations, if membership helps the taxpayer carry out the duties of his job. Reg. Section 1.274-2(a)(2)(iii)(b).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Bar exam fees. The original costs of obtaining a business license required for doing business such as the costs of the bar exam required to be admitted to the practice of law, are non-deductible capital expenditures. Sharon v. Commissioner, 591 F.2d 1273 (9th Cir. 1978), cert. denied, 442 U.S. 941 (1979).

Bar review course. The costs of review courses designed to prepare the taxpayer for the bar exam are non-deductible personal expenses. Reg. Section 1.162-5(b)(2)(iii), Ex. 3.

Bargain sales. A bargain sale of property (a sale or exchange for less than the property's fair market value), to a qualified organization results in a charitable contribution deduction in the amount of the difference between the sale price and the fair market value. Judge v. Commissioner, T.C. Memo. 1976-283.

Barrier removal. A taxpayer may elect to deduct up to $15,000 per year of architectural and transportation barrier removal expenses incurred for the purpose of making any facility or public transportation vehicle owned or leased by the taxpayer for use in his trade or business more accessible to and usable by handicapped and elderly individuals. Code Section 190(a).

Bed. The expense of purchasing a hospital bed, which was prescribed by the taxpayer's doctor for the relief of osteoporosis of the spine, qualifies as a deductible medical expense. PLR 8036015.

Beetle infestation. Sudden destruction of plants or trees caused by an unexpected or unusual infestation of beetles or other insects may result in a deductible personal casualty loss. IRS Publication 547, Casualties, Thefts, and Disasters.

CAUTION: In practice, the Tax Court has only allowed a casualty loss for this reason in cases where pine trees were attacked by southern pine beetles. Notter v. Commissioner, T.C. Memo. 1998-391.

Birth control pills. Birth control pills are deductible as a medical expense when prescribed by a doctor. Rev. Rul. 73-200, 1973-1 C.B. 140.

Birth defect. The cost of giving remedial language training to correct a condition caused by a birth defect is a deductible medical expense. Rev. Rul. 69-607, 1969-2 C.B. 40.

Blackmail. A deductible theft loss may arise from the taking of money or property from the taxpayer by blackmail. Rev. Rul. 72-112, 1972-1 C.B. 60.

Blasting. Blasting can be the cause of a deductible personal casualty loss. The damage may be deductible even if it occurred over a period of months. Durden v. Commissioner, 3 T.C. 1 (1944), acq. 1944 C.B. 8.

Blindness. Payments made to a reader for the blind for services performed in connection with the conduct of a blind employee's work are deductible as impairment-related employee expenses, which are not subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 75-316, 1975-2 C.B. 54. Amounts a parent paid to a person to accompany his blind child throughout the school day to guide the child while walking are deductible as medical expenses. Rev. Rul. 64-173, 1964-1 C.B. 121.

NOTE: A taxpayer who is totally or partially blind on the last day of the year and does not itemize deductions is entitled to a higher standard deduction. Code Section 63(f)(2).

Blood. The fair market value of blood donated by an individual to a qualified charitable organization is not deductible as a charitable contribution because furnishing blood for a transfusion or to a blood bank is analogous to the performance of personal services by the donor, rather than a contribution of property. Rev. Rul. 53-162, 1953-2 C.B. 127.

Boats. The fair market value of a boat donated to a qualified organization may be deducted as a charitable contribution. Sergeant v. Commissioner, T.C. Memo. 1998-265. A boat that has sleeping, cooking, and toilet facilities is treated as a home for purposes of the home mortgage interest deduction. Reg. Section 1.163-10T(p)(3)(ii).

Boats – Accidents. A boat accident may result in a deductible casualty loss, unless the accident is caused by the willful negligence or willful neglect of the taxpayer or another person operating the taxpayer's car. Reg. Section 1.165-7(a)(3).

Bond premium. If a taxpayer pays a premium to purchase a bond, the premium is part of the taxpayer's basis in the bond. If the bond yields taxable interest the taxpayer may choose to amortize the premium over the life of the bond, with the amount of an amortizable bond premium for the taxable year allowed as a deduction. Code Section 171(a)(1). For tax-exempt bonds, no deduction for the amount of an amortizable bond premium for the taxable year is allowed (Code Section 171(a)(2)), although any premium paid on tax-exempt bonds must be amortized. Reg. Section 1.171-1(c)(1).

Books. The cost of books and supplies required for education that is required by the taxpayer's employer or the law or that maintains or improves skills needed in the taxpayer's present work is deductible as a work-related educational expense. IRS Pub. 508, Tax Benefits for Work-Related Education.

Borrowed funds. A taxpayer who makes a charitable contribution with borrowed funds can deduct the contribution in the year it was made, regardless of when the taxpayer repays the loan. Granan v. Commissioner, 55 T.C. 753 (1971).

Bottled water. The cost of bottled water does not constitute a deductible medical expense. Flemming v. Commissioner, T.C. Memo 1980-583.

Boy Scouts of America. Donations to a nonprofit educational organization such as the Boy Scouts are deductible as charitable contributions unless the contribution is a substitute for tuition or other enrollment fees. Weingarden v. Commissioner, 86 T.C. 669 (1986).

Braille. The cost of teaching Braille to a visually impaired child is deductible as a medical expense. Reg. Section 1.213-1(e)(1)(v)(a).

Braille books. The cost of Braille books and magazines purchased for a blind child are deductible as a medical expense, but only to the extent that their cost exceeds the purchase price for regularly printed editions. Rev. Rul. 75-318, 1975-2 C.B. 88.

Breach of promise to marry. Amounts paid as damages for breach of a promise to marry, and attorney's fees and other costs of a suit to recover such damages, are non-deductible personal expenses. Reg. Section 1.262-1(b)(6).

Breakage. Accidentally breaking articles such as glassware or china under normal conditions does not give rise to a deductible casualty loss. Diggs v. Commissioner, T.C. Memo. 1959-99, aff'd, 281 F.2d 326 (2d Cir. 1960), cert. denied, 364 U.S. 908 (1960).

Bribes. Illegal bribes and kickbacks are not deductible. Code Section 162(c).

Broker commissions. Commissions paid in connection with an IRA or other investment property are subject to the IRA contribution limits and thus generally are not deductible. Rev. Rul. 86-142, 1986-2 C.B. 60.

TIP: Reasonable IRA trustee fees in excess of the maximum amount deductible for IRA contributions are deductible as expenses for the production of income subject to the 2 percent floor on miscellaneous itemized deductions if they are billed and paid separately. Rev. Rul. 84-146, 1984-2 C.B.

Burglary. The loss of money or property through burglary may be deductible as a theft or casualty loss. Rev. Rul. 72-112, 1972-1 C.B. 60.

Burial expenses. Burial or funeral expenses, including the cost of a cemetery lot, are non-deductible personal expenses. Carr v. Commissioner, T.C. Memo. 1979-400.

NOTE: Reasonable funeral expenses are deductible for estate tax purposes, but not deductible for estate income tax purposes. Code Section 642(g); Code Section 2053(a)(1).

Bus fare. The costs of air, rail, and bus transportation may be deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-2(a). The cost of transportation incurred primarily for, and essential to, medical care is deductible as a medical expense. Code Section 213(d)(1)(B).

Business bad debt. An employee's business bad debt such as a loan to the corporation the that the employee had to make to keep his job, may be deductible as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions. Trent v. Commissioner, 291 F.2d 669 (2d Cir. 1961).

Business liability insurance. An employee may be able to deduct business liability insurance premiums as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 76-277, 1976-2 C.B. 41.

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Business meal. A taxpayer may deduct as an unreimbursed employee expense 50 percent of the cost of a meal, including taxes and tip, if the meal is either associated with or directly related to the taxpayer's work. The 2 percent limit on miscellaneous itemized deductions is applied after the 50 percent meals and entertainment limit is applied. Code Sections 274(k), 274(n)(1).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Buyer resistance. Even in the absence of physical damage to the taxpayer's property, permanent buyer resistance due to changes in the neighborhood following flood damage and the resulting demolishment of nearby residences may give rise to a deductible casualty loss. Finkbohner v. United States, 788 F.2d 723 (11th Cir. 1986).

C

Campaign expenses. The expenses of seeking political office are non-deductible on the ground that they relate to office-seeking activities rather than to activities normally engaged in by officeholders, even if the candidate is running for re-election to the office and it represents his primary or sole employment. McDonald v. Commissioner, 323 U.S. 57 (1944).

Canadian charitable organizations. Donations to certain Canadian charitable organizations covered under the income tax treaty between the United Statesand Canada may be deducted as charitable contributions for U.S.federal income tax purposes. Notice 99-47, 1999-2 C.B. 344.

Cancellation of lease. Because no deduction is available for the loss of future income that was never received, a lessor who receives an amount in cancellation of a lease that was less than the value of the remaining rental payments for the unexpired period of the lease cannot deduct the difference between the amount received and the amount owed under the lease. Hort v. Commissioner, 313 U.S. 28 (1941).

Capital expenses. Capital expenses are generally not deductible for individuals. Code Section 263(a).

Capital expenses – Medical care. Capital expenses incurred for the primary purpose of medical care, may qualify as a deductible medical expense to the extent that the expenditure exceeds the increase in the value of the related property. Gerard v. Commissioner, 37 T.C. 826, 829-830 (1962).

Capital gains tax. A state tax on all net gains from the sale or exchange of capital assets that have been earned, actually or constructively received, accrued or credited to the taxpayer during the taxable year is a deductible state income tax. PLR 8411079.

Cars. The fair market value of a car, boat, or aircraft donated to a qualified organization may be deducted as a charitable contribution. SCA 1998-022 (Dec. 4, 1997) (automobiles); Sergeant v. Commissioner, T.C. Memo 1998-265 (boats). The costs of shipping the taxpayer's car from his former home to a new home in a move connected with the start of work in a new location is deductible as a moving expense. Rev. Rul. 65-309, 1965-2 C.B. 77.

Cars - Accidents. A car accident may result in a deductible casualty loss, unless the accident is caused by the willful negligence or willful neglect of the taxpayer or another person operating the taxpayer's car. Reg. Section 1.165-7(a)(3).

Cars – Business travel. The costs of operating and maintaining a car attributable to a taxpayer’s use of the car in her work may qualify as deductible unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the automobile is used for business purposes. Heuer v. Commissioner, 32 T.C. 947 (1959). A taxpayer can use his actual expenses to determine his deduction or use the standard mileage rate. The standard mileage rate for determining the deductible costs of operating an automobile for business purposes is 36 cents per mile for 2003 and 37.5 cents per mile for 2004. Actual auto expenses that can be deducted include depreciation, licenses, gas, oil, tolls, lease payments, insurance, garage rent, parking fees, registration fees, repairs, and tires. Rev. Proc. 2002-61, 2002-39 I.R.B. 616; Rev. Proc. 2003-76, 2003-43 I.R.B. __. If a taxpayer's car is furnished by his employer, he can only deduct his actual unreimbursed car expenses and cannot use the standard mileage rate. Publication 463, Travel, Entertainment, Gift and Car Expenses.

Cars – Expenses incurred on behalf of a charity. Out-of-pocket automobile expenses incurred by a taxpayer while performing gratuitous services for a qualified charitable organization qualify for the charitable contribution deduction. Francis v. Commissioner, T.C. Memo. 1988-226. The taxpayer may use a standard mileage rate to determine the amount of the deduction. Code Section 170(i). The standard mileage rate for charitable deduction purposes is 14 cents per mile for 2003 and 2004. Rev. Proc. 2002-61, 2002-39 I.R.B. 616; Rev. Proc. 2003-76, 2003-43 I.R.B. __.

Cars – Medical transportation. Out-of-pocket automobile expenses such as gas and oil, are deductible medical expenses when incurred for medical reasons. Depreciation, insurance, general repair, or maintenance expenses do not qualify for the medical expense deduction. Publication 502, Medical and Dental Expenses. The standard mileage rate may be used instead of actual expenses. The standard mileage rate allowed for out-of-pocket expenses for a taxpayer's use of his car for medical reasons is 12 cents a mile for 2003 and 14 cents per mile for 2004. Rev. Proc. 2002-61, 2002-39 I.R.B. 616; Rev. Proc. 2003-76, 2003-43 I.R.B. __.

Car pools. A taxpayer cannot deduct the expenses of using his car in a non-profit car pool. However, any payments received from passengers are treated as reimbursement of the taxpayer's expenses and do not have to be included in the taxpayer's income. Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Car registration. State and local taxes on the registration or licensing of highway motor vehicles are deductible as personal property taxes only if the tax is ad valorem, or substantially in proportion to the value of the motor vehicle, and is imposed on an annual basis. Reg. Section 1.164-3(c)(3). Vehicle license and registration fees may be deducted as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions if they are incurred in the course of the taxpayer's work. Rul 74-454, 1974-2 C.B. 57.

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, registration expenses cannot be deducted separately.

Casualty or theft loss. A taxpayer can deduct a loss caused by casualty or theft. The total casualty or theft losses of personal use property for a year must be reduced by 10 percent of the taxpayer's adjusted gross income, and after this reduction must be further reduced by one hundred dollars for each separate casualty or theft event. Code Section 165.

Cellular telephone. An employee may take an unreimbursed employee expense deduction subject to the 2 percent floor on miscellaneous itemized deductions for depreciation on a cellular telephone used in her work if its use is for the convenience of the employer and required as a condition of her employment. Code Section 280F(d)(4)(A)(v).

Cemetery lot. Burial or funeral expenses, including the cost of a cemetery lot, are not deductible for income tax purposes. Carr v. Commissioner, T.C. Memo 1979-400.

NOTE: Funeral expenses are deductible for estate tax purposes. Code Section 2053(a)(1).

Certification in a new state. A taxpayer who has met the minimum educational requirements for teachers in one state is considered to have met the minimum educational requirements in all states, even if additional education is required in order to be certified in another state, and thus may deduct as work-related educational expenses the cost of any additional education needed to qualify as a teacher in another state. Rev. Rul. 71-58, 1971-1 C.B. 55.

Chamber of Commerce. Money or property donated to a chamber of commerce is not deductible as a charitable contribution. IRS Pub. 526, Charitable Contributions. A taxpayer may claim an unreimbursedemployee expense deduction subject to the 2 percent floor on miscellaneous itemized deductions for dues paid to a chamber of commerce if membership helps the taxpayer carry out the duties of his job. Reg. Section 1.162-15(c).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Change of command ceremony. Entertainment expenses incurred by a Lieutenant Colonel in the Marine Corps for receptions connected to a change-of-command ceremony, which is an official function, were held to be deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Fogg v. Commissioner, 89 T.C. 310 (1987).

Charitable contributions. A voluntary donation or gift to or for the use of a qualified organization is deductible as a charitable contribution. Code Section 170(a)(1).

Charitable contributions - Use of property. A taxpayer is not allowed a charitable deduction for donating the right to use property to a charity because it is a gift of a partial interest in the property. Code Section 170(f)(3)(A).

Charitable split-dollar life insurance arrangements. No deduction will be allowed where a taxpayer makes a donation to a charity with the understanding that the charity will use the transferred funds, or a portion thereof, to pay the premiums of a life insurance policy on the taxpayer's life, and the death proceeds will be split between the charity and the taxpayer's beneficiaries at the time of the taxpayer's death. Code Section 170(f)(10).

Charitable travel, meals, and lodging. No deduction is allowed for transportation and other travel expenses relating to the performance of services away from home for a charitable organization, unless there is no significant element of personal pleasure, recreation, or vacation in the travel. Code Section 170(j). Reasonable expenditures for meals and lodging will only be allowed if the taxpayer is performing volunteer charitable services while away from home overnight in the course of rendering such services. Reg. Section 1.170A-1(g). Rev. Rul. 56-508, 1956-2 C.B. 126, modified by Rev. Rul. 84-61, 1984-1 C.B. 39. Transportation expenses incurred while rendering volunteer services qualify for the charitable deduction even if they are not performed away from home. Reg. Section 1.170A-1(g).

Charity benefit event. If a taxpayer pays a qualified charitable organization more than the fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, the taxpayer may deduct the amount paid above the fair market value of the privileges or other benefits received. Reg. Section 1.170A-1(h)(2).

Charity golf tournament. A taxpayer may deduct (without applying the 80 percent limitation on entertainment expenses), the cost of tickets to a golf tournament organized by the local volunteer fire company, where the event is run by volunteers and all net proceeds will be used to buy new fire equipment, if the event otherwise qualifies as an unreimbursed employee expense. The deduction is subject to the 2 percent floor on miscellaneous itemized deductions. Notice 87-23, 1987-1 C.B. 467.

Checking account fees. Fees charged by a bank for the privilege of writing checks on a personal checking account cannot be deducted, even if the account pays interest. Rev. Rul. 82-59, 1982-1 C.B. 47.

Child care. The cost of babysitting services in order to enable the taxpayer to do charity work is not deductible. Rev. Rul. 73-597, 1973-2 CB 69. The cost of child care is not deductible as a medical expense even if the expense enables the taxpayer to get medical or dental treatment. Rev. Rul. 78-266, 1978-2 C.B. 123.

Child support. Child support payments are neither deductible by the payer nor taxable to the payee. Code Sections 71(c)(1), 215(a).

Child expenses. Expenditures attributable to the income of a child, whether made by the parent or the child, are deemed to have been paid or incurred by the child. Code Section 73(b). The child is entitled to take deductions not only for expenditures that would be commonly considered business expenses or unreimbursed employee expenses, but also for other expenditures such as charitable contributions made by the parent in the name of the child and out of the child's earnings. Reg. Section 1.73-1(b).

Chiropractor. Fees paid to a chiropractor for medical care are deductible as medical expenses. Rev. Rul. 55-261, 1955-1 C.B. 307.

Christian Science practitioner. Fees paid to a Christian Science practitioner for medical care are deductible as medical expenses. Rev. Rul. 55-261, 1955-1 C.B. 307.

Church building bonds. The purchase of building bonds issued by a church is not a gift made to the church since the purchaser receives something of value in return for payment of the purchase price. Rev. Rul. 58-262, 1958-1 C.B. 143. However, a taxpayer may obtain a charitable contribution deduction by making a gift of the bonds to the church. Story v. Commissioner, 38 T.C. 936 (1968).

Church deacon. A taxpayer can deduct as a charitable contribution any unreimbursed expenses he has while in a permanent diaconate program established by his church. These expenses include the cost of vestments, books, and transportation required in order to serve in the program as either a deacon candidate or as an ordained deacon. Rev. Rul. 76-89, 1976-1 C.B. 58.

Church building fund assessments. Church building fund assessments are deductible as charitable contributions. Rev. Rul. 70-47, 1970-1 C.B. 49.

Church dues. Periodic church dues are deductible as charitable contributions. Rev. Rul. 70-47, 1970-1 C.B. 49.

Church pew rents. Church pew rents are deductible as charitable contributions. Rev. Rul. 70-47, 1970-1 C.B. 49.

Churches. Donations to a church or a convention or organization of churches are deductible as charitable contributions. Code Section 170(b)(1)(A)(i).

Civil Defense organizations. Donations to civil defense organizations are deductible as charitable contributions. Rev. Rul. 56-509, 1956-2 C.B. 129.

Civic league. Money or property donated to a civic league is not deductible as a charitable contribution. IRS Pub. 526, Charitable Contributions.

Clarinet. The cost of a clarinet and clarinet lessons, to correct teeth defects, is deductible as a medical expense. Rev. Rul. 62-210, 1962-2 C.B. 89.

Clean fuel vehicle. A portion of the cost of a qualified clean fuel vehicle is deductible, as is a portion of the cost of property used to store or dispense clean-burning fuel into a motor vehicle or to recharge motor vehicles powered by electricity. Code Section 179A(a).

Closed captioning. The cost of equipment that displays the audio part of television programs as subtitles for hearing-impaired persons is deductible as a medical expense. This deduction covers both the cost of a self-contained unit that can be attached to any conventional television set and the excess of the cost of a specially equipped color television set over the cost of the same model conventional color television set. Rev. Rul. 80-340, 1980-2 C.B. 81.

Closing costs. Closing costs are not deductible as home mortgage interest. Waters v. Commissioner, T.C. Memo. 1995-535.

Clothing. Although the cost of clothing generally is a non-deductible personal expense, the cost and upkeep of work clothes and uniforms is deductible if the taxpayer must wear them as a condition of employment and the clothes are not suitable for everyday wear. Pevsner v. Commissioner, 628 F.2d 467 (5th Cir. 1980), reh'g denied, 636 F.2d 1106 (5th Cir. 1981).

Clothing donations. The fair market value of used clothing donated to a qualified organization is deductible as a charitable contribution. Kaplan v. Commissioner, 43 T.C. 663 (1965).

Club dues. No deduction is allowed for the cost of membership in any club organized for business, pleasure, recreation, or other social purpose, including athletic, luncheon, sporting, airline, and hotel clubs. Code Section 274(a)(1)(B).

College professor. A college professor can deduct as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to the field of his teaching duties if the professor undertook the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. The deduction for these expenses is subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 63-275, 1963-2 C.B. 85.

College tuition. College tuition is generally a non-deductible personal expense. Code Section 262. Tuition for a work-related educational program may be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-5(a).

NOTE: Up to $3,000 in qualified tuition and related expenses in 2003 is deductible above the line if the taxpayer’s adjusted gross income does not exceed $65, 000 ($130,000 if filing a joint return). The amount deductible is $4000 in years 2004 and 2005 if the taxpayer’s adjusted gross income does not exceed $65, 000 ($130,000 if filing a joint return), and is $2000 if the taxpayer’s adjusted gross income does not exceed $80,000 ($160,000 if filing a joint return). No deduction is allowed for any expense for which a deduction is allowed to the taxpayer under any other provision. Code Section 222.

Comic books. A high school teacher who sponsored the school's extracurricular comic book club cannot deduct the cost of comic books purchased for use by the club and subsequently add to his own collection. Tesar v. Commissioner, T.C. Memo. 1997-207.

Commercial default. Where a taxpayer enters into a transaction with a third party expecting to receive payment for goods or services, and the third party's failure to pay the taxpayer is due to commercial default rather than criminal theft, the taxpayer cannot claim a deductible theft loss. Barry v. Commissioner, T.C. Memo. 1991-382.

Commissions. Commissions paid in connection with an IRA or other investment property are not deductible. Rev. Rul. 86-142, 1986-2 C.B. 60.

NOTE: Reasonable IRA trustee fees in excess of the maximum amount deductible for IRA contributions are deductible as expenses for the production of income subject to the 2 percent floor on miscellaneous itemized deductions if they are billed and paid separately. Rev. Rul. 84-146, 1984-2 C.B. 61.

Commitment to mental institution. The legal expenses paid in committing the taxpayer's spouse to a mental institution are deductible as medical expenses where, in the absence of that commitment, the patient would not have been able to receive treatment. Gerstacker v. Commissioner, 414 F.2d 448 (6th Cir. 1969).

Community chest. A community chest (a general fund set up to receive donations to help pay for a community's charity and social welfare needs), is a qualified organization for purposes of the charitable deduction. Code Section 501(c)(3).

Commuting expenses. The expenses of traveling between the taxpayer's home and principal place of business are non-deductible personal expenses. Reg. Section 1.262-1(b)(5). Even if a taxpayer suffers from a medical condition that requires him to use a special mode of transportation to travel between his home and place of employment, the transportation expenses are not considered essential to the receipt of medical care and thus constitute non-deductible commuting expenses rather than deductible medical expenses. Coopersmith v. Commissioner, T.C. Memo. 1971-280. Commuting expenses to a temporary work location are deductible travel expenses. Brockman v. Commissioner, T.C. Memo. 2003-3 (1/7/03).

Computer rental fees. A taxpayer traveling away from home for business purposes may be able to deduct the cost of renting a computer while away from home as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Computer - Used in taxpayer's work. A taxpayer may deduct, as an unreimbursed employee expense, depreciation (computed under the straight line method), on a computer used in her work if its use is for the convenience of the employer and required as a condition of her employment. Code Section 280F(d)(4)(A)(iv). A taxpayer who satisfies the employer convenience and condition of employment tests can claim an accelerated depreciation deduction and a Code Section 179 deduction if she uses the home computer more than 50 percent of the time in her work. Code Section 280F(b)(1). However, the 50 percent test does not apply to a computer used only in a part of the home that meets the requirements for taking a home office deduction. Temp. Reg. 1.280F-6T(b)(5).

Computer - Used to produce income. An individual may deduct depreciation on his home computer if he uses it to produce income, for example, to manage his investments that produce taxable income. Reg. Section 1.280F-6T(d)(3).

Condemnation. No deduction is available if the taxpayer's home is subject to condemnation, the legal taking of private property for public use without the owner's consent. However, because a condemnation is treated as a sale, any gain on the sale is eligible for exclusion. Code Section 121(d)(5).

Conditional gift. If a charitable contribution is a conditional gift that depends on a future act or event that may not take place, the donor can take an immediate deduction only if there is merely a negligible chance that the act or event will not take place. Reg. Section 20.2055-2(b).

Condominiums. Condominium dues or fees paid on a condominium the taxpayer uses as a principal residence are not deductible. Code Section 262(a). Mortgage interest is deductible under the same rules as other mortgage interest.

NOTE: A taxpayer who rents his condominium to others can deduct depreciation, repairs, upkeep, dues, interest and taxes, and assessments for the care of the common parts of the structure. Publication 527, Residential Rental Property.

Congressional hearings. Expenses incurred by a political appointee in connection with investigations and congressional hearings on the confirmation of his nomination do not constitute deductible business expenses. Estate of Rockefeller v. Commissioner, 83 T.C. 368 (1984).

Conservation contribution. A conservation contribution of real property to a qualified organization to be used only for conservation purposes is deductible as a charitable contribution. Code Section 170(h).

Construction tax. A residential construction tax, levied by a school district on each residential unit constructed in the district, does not constitute a deductible real estate tax because it is not levied for the general welfare but solely for school purposes, it is not triggered by the ownership of real property but by the use of it to build a residence, and it is not measured by the value of the real property but is a flat rate per residence to be constructed, regardless of value. PLR 8117149.

Contact lens insurance. The cost of a policy that provides for the replacement of lost or damaged contact lenses is a deductible medical expense. Rev. Rul. 74-429, 1974-2 C.B. 83.

Contact lenses. Amounts paid for contact lenses needed for medical reasons are deductible as a medical expense, as is the cost of equipment and materials required for using contact lenses such as saline solution and enzyme cleaner. Rev. Rul. 74-429, 1974-2 C.B. 83.

Continuing education. Education that maintains or improves skills needed in the taxpayer's present work such as refresher courses, courses on current developments, and academic or vocational courses, is deductible work-related education, subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-5(c).

Contributions in trust. If the taxpayer makes a gift to a charitable organization of a remainder interest of property held in trust, a charitable contribution deduction is allowed only if the trust is a charitable remainder annuity trust, a charitable remainder unitrust, or a pooled income fund. Code Section 170(f)(2)(A). If the taxpayer makes a gift of any other interest in property transferred in trust, a charitable contribution deduction is allowed only if the interest is in the form of a guaranteed annuity or if the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly), and the grantor is treated as the owner of such interest. Code Section 170(f)(2)(B).

Controlled substances. Amounts paid to obtain a controlled substance such as marijuana, in violation of federal law, are not deductible medical expenses even if state law permits the use of the substance when purchased with a physician's prescription. Rev. Rul. 97-9, 1997-1 C.B. 77.

Conventions. The expenses of attending a convention are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer can show that attendance benefits his trade or business. Rev. Rul. 63-266, 1963-2 C.B. 88.

Conventions outside North America. The expenses of attending a convention or seminar outside the North American area are deductible unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions only if the meeting is directly related to the taxpayer's work and it is as reasonable to hold the meeting outside the North American area as in it. Code Section 274(h)(1).

Conversion of U.S. dollars. The conversion of U.S. dollars into foreign currency at an official rate of exchange that is not as favorable as the free market rate does not result in a deductible loss. Rev. Rul. 74-276, 1974-1 C.B. 54.

Cooperative housing mortgage interest. A tenant-stockholder in a cooperative housing corporation can deduct amounts paid to the cooperative housing corporation representing her share of the real estate taxes paid or incurred on the cooperative's houses or apartment building and on the land where they are situated. Code Section 216(a)(1). Similarly, a tenant stockholder can claim a home mortgage interest deduction for her share of interest paid or incurred by the cooperative housing corporation on a debt to buy, build, change, improve, or maintain the housing or on a debt to buy the land. Code Section 216(a)(2).

NOTE: A tenant-stockholder who rents her apartment in the cooperative building to others usually can deduct, as a rental expense, all the maintenance fees she pays to the cooperative housing corporation. IRS Pub. 527, Residential Rental Property.

Corporate expenses. Because a corporation is treated as a separate tax entity from its shareholders, an individual shareholder cannot claim a deduction from her individual income for the expenses of a corporation, even if the shareholder personally pays the expenses. Deputy v. DuPont, 308 U.S. 488, 494 (1940).

Cosmetic surgery. Surgery for purely cosmetic reasons that is directed at improving the taxpayer's appearance and does not meaningfully promote the proper function of the body or prevent or treat an illness or disease is not deductible as a medical expense. Code Section 213(d)(9).

Counseling. The cost of spiritual guidance or counseling is not deductible as a medical expense. Miller v. Commissioner, T.C. Memo 1980-136.

Country clubs. No deduction is permitted for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purposes. Code Section 274(a)(3). Clubs organized for business, pleasure, or other social purposes include but are not limited to country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussion. Reg. Section 1.274-2(a)(2)(iii)(a).

Cover charges. A taxpayer may deduct, as employee expenses subject to the 2 percent floor on miscellaneous itemized deductions, 50 percent of cover charges for admission to a nightclub if the entertainment is associated with or directly related to the taxpayer's business. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Coverdell education savings accounts. No deduction is allowed for contributions to a Coverdell education savings account (formerly called an education IRA). Code Section 530.

NOTE: Distributions are not included in the beneficiary's income as long as they are used for qualified higher education purposes. Code Section 530(d)(2).

CPA review course. The cost of review courses to prepare the taxpayer for the certified public accountant examination is not deductible because the courses are part of a program of study that can qualify the taxpayer for a new profession. Glenn v. Commissioner, 62 T.C. 270 (1974).

Credit card fees. Credit card fees are a non-deductible personal expense even if the fees are charged by the credit issuer in conjunction with the taxpayer's use of the credit card to pay her taxes. SCA 200115032.

Credit union deposits. A loss on deposits that occurs when a bank, credit union, or other financial institution becomes insolvent or bankrupt may be deducted as a casualty loss, ordinary loss, or non-business bad debt. If the loss is deducted as an ordinary loss, it is limited to $20,000 per financial institution, reduced by any insurance recovery, and subject to the 2 percent floor on miscellaneous itemized deductions. Deposits that were federally insured cannot be deducted as an ordinary loss. One percent owners or officers of the insolvent financial institution, and persons related to them, cannot take the loss as an ordinary loss. Code Section 165(l)(1), (5).

Criminal activity. Deductions arising out of criminal activity generally are disallowed when allowing the deductions would severely frustrate public policy, although deductions may be allowed for expenses that also would be incurred in a legitimate activity. Compare Lincoln v. Commissioner, T.C. Memo. 1985-300 (no theft loss deduction allowed for money stolen by taxpayer's co-conspirators in scheme to purchase stolen goods because allowing a deduction would defeat purpose of statute designed to prevent trafficking in stolen goods), with Commissioner v. Sullivan, 356 U.S. 27 (1958) (deduction allowed for rents and wages incurred in operating illegal bookmaking enterprise, where the costs were the ordinary and necessary expenses of conducting an illegal but taxable operation).

Cruise ship. The costs of attending a convention, seminar, or similar meeting held on a cruise ship are not deductible as an unreimbursed employee business expense unless the taxpayer can establish that the meeting was directly related to the active conduct of the taxpayer's trade or business and that the cruise ship is registered in the United States and all ports of call are located in the United States or its possessions. If these conditions are satisfied, a taxpayer may deduct up to $2,000 per year in expenses of attending conventions on cruise ships, subject to the 2 percent floor on miscellaneous itemized deductions. Code Section 274(h)(2).

TIP: Expenses allocable to cruise ship conventions are not subject to the luxury water transportation rules, which limit the amount of any otherwise allowable deduction for costs of business travel by water to twice the highest federal per diem amount generally available to federal employees for travel in the United States, multiplied by the number of days in transit. Code Section 274(m)(1).

Cruise Ship - Medical expense deduction. The cost of traveling on a cruise ship is not deductible as a medical expense, even if the trip is beneficial to the taxpayer's general health and well-being, if it is not undertaken primarily for and essential to the taxpayer's medical care. Mizl v. Commissioner, T.C. Memo. 1980-227.

Crutches. Amounts paid to buy or rent crutches are deductible as a medical expense. Reg. Section 1.213-1(e)(1)(iii).

D

Damages for breach of employment contract. A taxpayer who breaks an employment contract may deduct, as a miscellaneous itemized deduction subject to the 2 percent floor, damages paid to the former employer if the damages are attributable to the pay received and reported by the taxpayer from that employer. Rev. Rul. 67-48, 1967-1 C.B. 50.

Dancing lessons. The cost of ballet training for an individual suffering from scoliosis is not deductible as a medical expense, even if recommended by the taxpayer's physician and beneficial to the taxpayer's health, unless the expenses would not otherwise have been incurred for non-medical reasons. Ende v. Commissioner, T.C. Memo. 1975-256. The cost of ballroom dance lessons recommended by the taxpayer's doctor as a form of therapy for arthritis and to alleviate nervous tension is not deductible as a medical expense because it is not proximately related to the taxpayer's medical care. France v. Commissioner, T.C. Memo. 1980-215.

Daycare. No deduction is allowed for the costs of child care. The cost of babysitting services in order to enable the taxpayer to do charity work is not deductible. Rev. Rul. 73-597, 1973-2 CB 69. The cost of child care is not deductible as a medical expense even if the expense enables the taxpayer to get medical or dental treatment. Rev. Rul. 78-266, 1978-2 C.B. 123.

Daycare center - Qualified charitable organization. A daycare center may be a qualified charitable organization if it is operated exclusively for educational purposes. Educational purposes includes the providing of care of children away from their homes if substantially all of the care provided by the organization is for purposes of enabling individuals to be gainfully employed, and the services provided by the organization are available to the general public. Code Section 501(k).

CAUTION: A contribution to a daycare center is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution. Publication 526, Charitable Contributions.

Deacon. A taxpayer can deduct as a charitable contribution any unreimbursed expenses he has while in a permanent diaconate program established by his church. These expenses include the cost of vestments, books, and transportation required in order to serve in the program as either a deacon candidate or as an ordained deacon. Rev. Rul. 76-89, 1976-1 C.B. 58.

Deafness. The cost of special education such as sign language or lip reading, designed to alleviate the effects of deafness is deductible as a medical expense, as is the cost of a "note taker" to take notes in class for a deaf college student. Estate of Baer v. Commissioner, T.C. Memo. 1967-34. The cost of special equipment that allows a deaf person to communicate by telephone is deductible as a medical expense. Rev. Rul. 71-48, 1971-1 C.B. 99. Similarly, the cost of equipment that displays the audio part of television programs as subtitles for hearing-impaired persons is deductible as a medical expense. Rev. Rul. 80-340, 1980-2 C.B. 81.

Debt forgiveness – Loans. If a taxpayer lends a sum of money to a charitable organization and subsequently forgives the debt, the amount of debt cancelled generates a deductible charitable contribution in the year of the cancellation. Story v. Commissioner, 38 T.C. 936 (1962).

Debt forgiveness – Service-related debt. The forgiveness of a purported debt generated by services is not the equivalent of making a charitable contribution, so that a clergy person cannot claim a deduction when he forgives his church's obligation to pay his overdue housing allowance. Winston v. Commissioner, T.C. Memo. 1984-248.

Decline in value. A decline in the value of stock owned by the taxpayer, due to a fluctuation in the market price of the stock or to other similar cause, does not give rise to a loss deduction as long as the stock retains any recognizable value. Reg. Section 1.165-4(a). If the stock loses all value, the taxpayer may be able to claim a deduction for a loss due to worthless securities. Code Section 165(g).

Delegate expenses. A chosen representative attending a convention of a qualified organization can take a charitable deduction for unreimbursed expenses for travel and transportation, including a reasonable amount for meals and lodging, while away from home overnight in connection with the convention. However, a delegate cannot deduct personal expenses for sightseeing, fishing parties, theater tickers, or nightclubs, or expenses for the delegate's spouse or children. Rev. Rul. 58-240, 1958-1 C.B.141.

Demolition expenses. The owner of a structure generally cannot claim a deduction for any amount expended for the demolition of the structure or any loss sustained on account of the demolition. Code Section 280B.

Demolition expenses – Loss incurred before demolition. A loss sustained before a building's demolition will not be treated as having been sustained on account of the demolition of the building and therefore will not be disallowed. De Cou v. Commissioner, 103 T.C. 80 (1994).

Demolition expenses – Government-ordered demolition. The government-ordered demolition or relocation of a home that is unsafe to use because of a disaster may give rise to a deductible casualty loss. Code Section 165(k).

Demonstrators. If a direct seller uses his company's products himself, the cost of the products is a non-deductible personal expense even if he keeps the products on hand to show to potential customers. If the seller uses a product as a demonstrator for one year or less and the demonstrator itself is not available for purchase by customers, its cost is a deductible business expense. If the demonstrator itself can be bought by customers, the seller must include it in inventory. IRS Pub. 911, Direct Sellers.

Dental licensing fees. No deduction is allowed for professional accreditation fees paid to get initial licensing. Reg. Section 1.162-5(b).

Dental treatment. Amounts paid for dental treatment, including fees paid to dentists for x-rays, fillings, braces, extractions, and dentures are deductible as medical expenses. IRS Pub. 502, Medical and Dental Expenses.

Dentures. The cost of artificial teeth is a deductible medical expense. Reg. Section 1.213-1(e)(1)(ii).

Dependents. An individual taxpayer may claim an exemption for his child and for other dependents. Code Section 151(c).

NOTE: A tax credit may be available for amounts paid for the care of a dependent in order to allow the taxpayer to be gainfully employed. Code Section 21.

Depreciation – Automobile. A taxpayer can deduct the portion of depreciation expense for an automobile that is attributable to the use of the automobile in his work as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer chooses to deduct actual expenses. Heuer v. Commissioner, 94 T.C. 347 (1959).

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, maintenance and repair expenses cannot be deducted separately.

Depreciation – Computer or cell phone. A taxpayer may deduct, as an unreimbursedemployee expense, depreciation (computed under the straight line method), on a computer or cellular telephone used in her work if its use is for the convenience of the employer and required as a condition of her employment. Code Section 280F(d)(4)(A)(iv). A taxpayer who satisfies the employer convenience and condition of employment tests can claim an accelerated depreciation deduction and a Code Section 179 deduction if she uses the computer or cell phone more than 50 percent of the time in her work. Code Section 280F(b)(1). However, the 50 percent test does not apply to a computer used only in a part of the home that meets the requirements for taking a home office deduction. Temp. Reg. 1.280F-6T(b)(5).

Deterioration. Losses incurred as a result of progressive deterioration of property through a steadily operating cause are not due to a sudden identifiable event and thus are not deductible as casualty losses. Rev. Rul. 59-102, 1959-1 C.B. 200.

Diagnostic services. The cost of a diagnostic service qualifies as a deductible medical expense. Reg. Section 1.213-1(e)(1)(ii).

Diamond ring. The accidental loss or disappearance of property may be deductible as a casualty loss if it results from a sudden, unusual, or unexpected event such as the loss of a diamond from a ring when a car door is slammed on the taxpayer's hand. White v. Commissioner, 48 T.C. 430 (1967), acq., 1969-1 C.B. 21.

Diaper service. Diaper service for normal babies is considered a personal expense rather than a deductible medical expense. Rev. Rul. 55-261, 1955-1 C.B. 307. However, the IRS has allowed a deduction for diaper services in the case of a severely brain damaged child who had to be diapered. PLR 8137085.

Direct Sellers. If a direct seller uses his company's products himself, the cost of the products is a non-deductible personal expense even if he keeps the products on hand to show to potential customers. If the seller uses a product as a demonstrator for one year or less and the demonstrator itself is not available for purchase by customers, its cost is a deductible business expense. If the demonstrator itself can be bought by customers, the seller must include it in inventory. IRS Pub. 911, Direct Sellers.

Disability fund - State. Mandatory employee contributions to a state disability fund are deductible as taxes. Rev. Rul. 84-194, 1981-2 C.B. 54.

Disability fund - Private. Employee contributions to a private, voluntary plan that pay disability benefits to any covered employee who cannot work, due to an injury or illness not related to the job, are not deductible as taxes, business expenses, or as medical expenses, but are non-deductible personal expenses. Rev. Rul. 81-194, 1981-2 C.B. 54.

Disability insurance premiums. Personal disability insurance premiums are a personal expense and cannot be deducted as a business expense (Blaess v. Commissioner, 28 T.C. 710 (1957)) or as a medical expense (Kennedy v. Commissioner, T.C. Memo. 1980-310).

Disability pay. If a taxpayer repays sick leave or disability annuity payments received in an earlier year to be eligible for nontaxable Federal Employees' Compensation Act (FECA) benefits, the taxpayer can deduct the amount repaid as a miscellaneous itemized deduction, subject to the 2 percent floor. Rev. Rul. 79-322, 1979-2 C.B. 76.

Disabled access. A taxpayer may elect to treat up to $15,000 of qualified expenditures for the purpose of making any facility or public transportation vehicle owned or leased by the taxpayer for use in his trade or business more accessible to and usable by handicapped and elderly individuals as a deduction rather than as a charge to a capital account for any taxable year. Code Section 190.

NOTE: An eligible small business that pays or incurs expenses to provide access to persons with disabilities in order to comply with the Americans with Disabilities Act of 1990 may claim a tax credit for 50 percent of its eligible access expenditures for the year that exceed $250, but do not exceed $10,250. Code Section 44(a).

Disabled dependent care expenses. Disabled dependent care expenses may be treated as deductible medical expenses, or alternatively as work-related expenses for purposes of claiming the credit for household and dependent care services necessary for gainful employment, but not as both. Reg. Section 1.213-1(f).

Disaster. The government-ordered demolition or relocation of a home that is unsafe to use because of a disaster may give rise to a deductible casualty loss. Code Section 165(k).

Disaster relief contributions. Although contributions earmarked for the relief of a particular individual or family cannot be deducted, taxpayers may deduct contributions made to a qualified organization and earmarked for flood relief, hurricane relief, or other disaster relief. Notice 95-66, 1995-51 C.B. 19.

Discount points – Home mortgage. Points paid by a borrower to obtain a home mortgage are deductible as home mortgage interest in the year paid if payment of points is an established business practice in the area in which such indebtedness is incurred, and the amount of such payment does not exceed the amount generally charged in such area. Code Section 461(g)(2).

CAUTION: Points paid to refinance a mortgage on the taxpayer's principal residence generally are deductible only over the life of the loan. Rev. Rul. 87-22, 1987-1 C.B. 146.

Disease. The death of livestock from disease is not a deductible casualty loss. Rev. Rul. 61-216, 1961-2 C.B. 134. The death of trees or other plants by disease is also not a deductible casualty loss. Burns v. United States, 174 F. Supp. 203 (N.D. Ohio 1959, aff'd per curiam, 284 F.2d 436 (6th Cir. 1960).

Display materials. Baggage charges and transportation costs for sample or display materials may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. IRS Pub. 463, Travel, Entertainment and Gift Expenses.

Display racks. Signs, display racks, and other promotional materials to be used on the recipient's business premises do not count as gifts in applying the $25 limitation on deductible business gifts. Therefore, the cost for them can be deducted as a trade or business expense or an expense for the production or collection of income. Code Section 274(b)(1)(B).

Disputed fees. If the taxpayer contests an asserted liability but transfers money to provide for the satisfaction of the liability, as when a taxpayer transfers money to an attorney's trust account pending resolution of a dispute over attorney's fees, the taxpayer can claim a deduction in the year of the transfer if a deduction would be allowed if not for the dispute. Gale v. Commissioner, T.C. Memo 2002-54

Dividend reinvestment plans. Service charges paid by a subscriber to a dividend reinvestment plan, which permits the subscriber to use his dividends to purchase more shares of stock in the corporation instead of receiving cash, are investment expenses deductible as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 70-627, 1970-2 C.B. 159.

Dividends tax. A state tax on all on all dividends earned, actually or constructively received, accrued or credited to a taxpayer during the year is a deductible state income tax. PLR 8411079.

Divorce. Although attorney fees relating to divorce generally are non-deductible personal expenses, the expenses of legal advice relating to the tax consequences of a divorce are deductible as miscellaneous itemized deductions subject to the 2 percent floor if the bill specifies how much is for tax advice and the determination of that amount is done in a reasonable way. Rev. Rul. 72-545, 1972-2 C.B. 179. Further, attorney fees are deductible as expenses for the production of income subject to the 2 percent floor on miscellaneous itemized deductions if they are paid or incurred to collect taxable alimony. Reg. Section 1.262-1(b)(7).

Domestic fraternal society. A contribution to a domestic fraternal society, order, or association, operating under the lodge system, may be a deductible charitable contribution, but only if such contribution or gift is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Code section 170(c)(4)

Drivers. An agent-driver or commission-driver engaged in distributing meat products, vegetable products, bakery products, beverages (other than milk), or laundry or dry cleaning services may qualify as a statutory employee who can deduct employee business expenses above the line in computing adjusted gross income, rather than as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 90-93, 1990-2 C.B. 33.

Drought. Damages due to drought such as a greater than normally anticipated failure of planted tree seedlings, generally are not sudden enough to result in a deductible casualty loss, but may be deductible as a loss due to involuntary conversion. Rev. Rul. 90-61, 1990-2 C.B. 39. However, although damages due to drought generally are treated as progressive deterioration, if the damage occurs relatively suddenly the loss will qualify as a casualty loss. Ruecker v. Commissioner, T.C. Memo. 1981-257.

CAUTION: Drought-related damage generally must be incurred in a trade or business or in a transaction entered into for profit in order to be deductible as a loss. Rev. Rul. 77-490, 1977-2 C.B. 64.

Drug abuse treatment. The cost of treatment, including meals and lodging, at a drug abuse center (Rev. Rul. 72-226, 1972-1 C.B. 96), or at a therapeutic center for alcoholism is a medical expense. Rev. Rul. 73-325, 1973-2 C.B. 75.

Drugs – Medical expense deduction. The cost of legal prescription drugs and medicines is deductible as a medical expense. Code Section 213(b). Amounts paid for medicines that can be bought without a prescription do not constitute deductible medical expenses. Code Section 213(b). Amounts paid to obtain a controlled substance such as marijuana, in violation of federal law, are not deductible medical expenses even if state law permits the use of the substance when purchased with a physician's prescription. Rev. Rul. 97-9, 1997-1 C.B. 77.

NOTE: Although not deductible, the cost of non-prescription drugs can be reimbursed by health flexible spending arrangements (FSAs) and other employer health plans. Rev. Rul. 2003-102, 2003-38 I.R.B. __.

Drugs – Trafficking. No deduction is allowed for any amount paid or incurred in carrying on a trade or business that consists of illegal trafficking in controlled substances. Code Section 280E.

Dry cleaning. The cost of dry cleaning, laundry, and pressing clothing while away from home on business may be deductible as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Proc. 89-67, 1989-2 C.B. 795.

Dry rot. Damage caused by dry rot is not a casualty loss because dry rot causes damage through progressive deterioration rather than through a sudden event. Hoppe v. Commissioner, 42 T.C. 820 (1964), aff'd, 354 F.2d 988 (9th Cir. 1965).

Dues. No deduction is permitted for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purposes. Code Section 274(a)(3). Clubs organized for business, pleasure, or other social purposes include but are not limited to country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussion. Reg. Section 1.274-2(a)(2)(iii)(a).

NOTE: A taxpayer may claim an unreimbursedemployee expense deduction subject to the 2 percent floor on miscellaneous itemized deductions for dues paid to professional organizations, chambers of commerce, and similar organizations if membership helps the taxpayer carry out the duties of his job. Reg. Section 1.274-2(a)(2)(iii)(b). These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

E

Ear piercing. The cost of ear piercing is a not a deductible medical expense. Rev. Rul. 82-111, 1982-1 C.B. 48.

Earthquake. An earthquake may give rise to a deductible casualty loss. Londagin v. Commissioner, 61 T.C. 117 (1973).

Easement. The grant of a conservation easement to a qualified organization gives rise to a charitable contribution deduction, with the value of the easement determined by calculating the difference between the fair market value of the total property before the grant of the easement and the fair market value of the property after the grant. Johnston v. Commissioner, T.C. Memo. 1997-475.

Educational expenses. Educational expenses are in general non-deductible personal expenses. Educational expenses that are required by the taxpayer's employer or the law in order to maintain the taxpayer's present salary, status, or job, or that maintains or improves skills needed in the taxpayer's present work, may be deductible as employee business expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-5(a).

Educational expenses - Medical care deduction. While ordinary education is not medical care, the cost of attending a special school for a mentally or physically handicapped individual is a medical expense where alleviation of the handicap is a principal reason for attending the school. Reg. Section 1.213-1(e)(1)(v)(a). A school will be considered "special" when its primary function is to furnish medical care, and education is only incidental to that function. A portion of tuition payments made for attendance at a regular school that provides special programs may also qualify for the medical care deduction. A taxpayer must specifically ascertain and document the cost attributable to medical care (i.e., the portion of tuition directly attributable to the special program that qualifies as medical care). Fischer v. Commissioner, 50 T.C. 164 (1968), acq. 1969-2 C.B. 24.

Education IRAs. No deduction is allowed for contributions to a Coverdell education savings account, or ESA (formerly called an education IRA). Code Section 530.

NOTE: Amounts deposited in the ESA grow tax free until withdrawn, and distributions are not included in the beneficiary's income as long as they are used for qualified higher education purposes. Code Section 530(d)(2).

Egg donor. A medical expense deduction can be taken for egg donor fees and other expenses of obtaining an egg donor so that a taxpayer may attempt pregnancy, including fees paid to a coordinating agency for procuring donor, fees paid to the donor for time and expense, the expenses of medical and psychological testing of the donor, insurance fees to cover medical or psychological needs of the donor, and legal expenses for the preparation of the contract between the taxpayer and the egg donor. PLR 200318017.

Elastic stockings. The cost of elastic stockings is deductible as a medical expense. Cohen v. Commissioner, T.C. Memo. 1951-9.

Electrolysis. The cost of removing unwanted facial hair by methods such as electrolysis, where the removal is due to the taxpayer's personal preference, is not deductible as a medical expense. PLR 8042075.

Elevator. The installation of an elevator, on a doctor's advice, qualifies as a medical care expense, but the medical expense deduction is limited to the cost of the elevator, less the increase in value to the home attributable to the elevator. Reg. Section 1.213-1(e)(1)(iii).

Embezzlement. A deductible theft loss may arise when money or property is taken from a taxpayer through embezzlement. Reg. Section 1.165-8(d); Rev. Rul. 72-112, 1972-1 C.B. 60.

Emergency Energy Programs. Donations to a utility company's emergency energy program are deductible as charitable contributions if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. Rev. Rul. 85-184, 1985-2 C.B. 84.

Eminent domain. Although the compulsory or involuntary conversion of property by seizure, requisition, or condemnation, or as the result of the threat or imminence or requisition or condemnation, generally produces taxable gain, the recognition of which may be deferred under certain circumstances (Code Section 1033), it also may give rise to a deductible loss. PLR 200014042.

Employee expenses. Unreimbursedemployee expenses, which are ordinary and necessary expenses paid during the tax year for carrying on the taxpayer's trade or business of being an employee that are not reimbursed by the taxpayer's employer, are deductible as miscellaneous itemized deductions subject to the 2 percent floor. Reg. Section 1.67-1T(a)(1)(i).

CAUTION: If a taxpayer is eligible to be reimbursed for an expense from his employer, but fails to make a proper claim for reimbursement, the expense is not deductible. Stolk v. Commissioner, 40 T.C. 345 (1963), affd., 326 F.2d 760 (2d Cir. 1964).

Employment agency fees. Employment and outplacement agency fees paid in looking for a new job in the taxpayer's present occupation are deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Cremona v. Commissioner, 58 T.C. 219 (1972).

CAUTION: A taxpayer who has a substantial break between the time of her former job and looking for a new one cannot deduct job search expenses because she is no longer engaged in a trade or business. Rev. Rul. 75-120, 1975-1 C.B. 55.

Employment taxes - Household employees. The employment taxes paid for household employees are not deductible because they are not taxes imposed on the taxpayer. Reg. Section 1.164-1(a).

Entertainment. A deduction for entertainment expenses is allowed only if the entertainment is either directly related to or associated with the active conduct of a trade or business. Code Section 274(a)(1). The deduction is limited to 50 percent of the taxpayer's otherwise deductible business-related entertainment expenses. Code Section 274(n).

Entertainment facilities. Generally no deduction is allowed for the costs of using an entertainment facility such as a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, apartment, hotel suite, or home in a vacation resort. Code Section 274(a)(1)(B).

Erosion. Because damages caused by erosion occur over an extended period of time and are not due to a sudden, unexpected event, they generally are not deductible as casualty losses. Carr v. Commissioner, T.C. Memo 1979-400.

Estate planning advice. Fees for estate planning advice with regard to income taxes are deductible as investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. Luman v. Commissioner, 79 T.C. 846.

Estate tax. A taxpayer can deduct, as a miscellaneous itemized deduction not subject to the 2 percent floor, the federal estate tax attributable to income in respect of a decedent that the taxpayer, as beneficiary, includes in her gross income. Bridges v. Commissioner, 64 T.C. 968 (1975).

Estate tax interest. If a decedent's estate has elected to pay the estate tax in installments, no deduction is allowed (for income tax or estate tax purposes), for any interest accruing on the unpaid portion of the estate tax. Code Section 2053(c)(1)(D). For decedents dying prior to 1998, interest paid on account of an agreement to pay the estate tax in installments was deductible. Estate of Baillyv. Commissioner, 81 T.C. 949 (1983). If the estate borrowed money to pay federal and state taxes in order to avoid a forced sale of assets at a sacrifice price, the interest on the loan is deductible as an expense of estate administration. PLR 9449011.

Eviction. The loss of a taxpayer's home and furnishings when the taxpayer is evicted from the home due to his failure to make mortgage payments is not caused by any sudden, unexpected, and external event and thus does not give rise to a deductible casualty or theft loss. Washington v. Commissioner, T.C. Memo. 1990-386, affd. by unpublished order, 930 F.2d 919 (6th Cir. 1991).

Excess deductions of estate. If an estate's total deductions in the last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess as miscellaneous itemized deductions subject to the 2 percent floor. Reg. Section 1.641(b)-3(d).

Exchange students. A charitable contribution deduction is allowed for amounts spent to maintain a foreign or American student as a member of the taxpayer's household. Code Section 170(g). The student must live in the taxpayer's home under an agreement with a qualifying organization as part of a program to provide educational opportunities for the student, cannot be a dependent or relative, and must be a full-time student in the twelfth grade or lower. Code Section 170 (g) (1). Expenses that qualify for the deduction include the cost of books, tuition, food, clothing, transportation, medical and dental care, entertainment, and other amounts spent for the well-being of the student. The amount deductible may not exceed $50 multiplied by the number of full calendar months in the taxable year that the student is maintained in the taxpayer's home. Code Section 170(g)(2)(A).

CAUTION: A taxpayer cannot deduct the costs of a foreign student living in her home under a mutual exchange program through which her child will live with a family in a foreign country. Publication 526, Charitable Contributions.

Excise taxes. The excise tax imposed on each act of self-dealing between a private foundation and a disqualified person is not a deductible tax. Code Section 164(a). An individual purchasing state excise tax credits from another entity under a state law that permits the sale of these credits by taxpayers unable to utilize them cannot treat the purchase price as a deductible tax because the payment is not made to the state government. PLR 8742010.

Exercise equipment. The cost of exercise equipment, used by the taxpayer to maintain his stamina and general health, is not a deductible medical expense. Kelly v. Commissioner, T.C. Memo. 1991-605.

Exempt income. No deduction is allowed for expenses paid or incurred to produce tax-exempt income, including interest on a debt incurred to buy tax-exempt securities. Code Section 265(a).

Extortion. A deductible theft loss may arise when money or property is taken from a taxpayer through extortion. Rev. Rul. 72-112, 1972-1 C.B. 60.

Extravagant entertainment. No deduction is allowed for the cost of entertainment that is lavish or extravagant. Expenses are not considered extravagant if they are reasonable given the circumstances. Code Section 162(a)(2). Expenses will not be disallowed just because they exceed a fixed dollar amount or are incurred at deluxe restaurants, hotels, nightclubs, or resorts. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Eye exams. Fees paid for eye examinations are deductible as medical expenses. Huff v. Commissioner, T.C. Memo. 1995-200.

Eyeglasses. Amounts paid for eyeglasses needed for medical reasons are deductible as a medical expense. Reg. Section 1.213-1(e)(1)(iii). Eyeglasses are considered a personal item and thus are not deductible as a business expense even if their use is necessary in the taxpayer's business. Bakewell v. Commissioner, 23 T.C. 803 (1955).

Eye surgery. The cost of radial keratotomy or LASIK eye surgery is a deductible medical expense. Rev. Rul. 2003-57, 2003-22 I.R.B. 959.

F

Failure to file insurance claim. If a taxpayer has a medical expense or casualty or theft loss that would be covered in whole or in part by insurance if a claim was filed, the taxpayer must in a timely manner file an insurance claim in order to take a deduction. Code Section 165(h)(4)(E).

False Pretenses. The taking of money from a taxpayer through false pretenses or misrepresentation may give rise to a deductible theft loss if the false pretenses or misrepresentation is illegal under state or local law. Rev. Rul. 71-381, 1971-2 C.B. 126; IRS Publication 547, Casualties, Thefts, and Disasters.

Family estate trust kit. The cost of a kit or materials that instruct a taxpayer how to set up a family estate trust is not deductible as an investment expense or an educational expense. Rev. Rul. 79-324, 1979-2 C.B. 219.

False teeth. The cost of false teeth is deductible as a medical expense. Reg. Section 1.213-1(e)(1)(ii).

Federal crime investigation. Although travel expenses generally are not deductible if the taxpayer's new assignment is realistically expected to last for more than one year, a federal employee participating in a federal crime investigation or prosecution is not subject to the one-year rule and thus may deduct travel expenses even if she is away from her home for more than one year. Code Section 162(a).

Federal taxes. No deduction is allowed for federal taxes, including the federal income tax, federal estate tax, FICA tax, and federal war profits and excess profits taxes. Code Section 275(a).

Fee-basis official. A state or local government official who is paid in whole or in part on a fee-basis may deduct unreimbursed employee expenses as an above-the-line adjustment to income rather than as a miscellaneous itemized deduction subject to the 2 percent floor. Code Section 62(a)(2)(C).

Fees and charges. Fees paid to a broker, bank, trustee, or similar agent to collect investment income are deductible as investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.212-1(g).

CAUTION: Fees paid to a broker to buy investment property are not deductible and must be added to the basis of the property. Reg. Section 1.263(a)-2(e).

Fees and licenses. Fees and licenses such as car licenses, marriage licenses, and dog tags are not deductible. IRS Pub. 529, Miscellaneous Deductions.

Feminine hygiene products. The costs of feminine hygiene supplies are not deductible medical expenses. Russell v. Commissioner, T.C. Memo. 1953-357.

Fertility enhancement procedures. The cost of fertility treatments, including procedures such as in vitro fertilization (including temporary storage of eggs or sperm), and surgery, including an operation to reverse prior surgery that prevents having children, is deductible as a medical expense. PLR 200318017.

Fines or penalties. No deduction is allowed for fines or penalties paid to a governmental unit for violating a law, or for any amount paid in settlement of actual or potential liability for a civil or criminal fine or penalty. Code Section 162(f).

Fire companies. Donations by a taxpayer to a non-profit volunteer fire companies are deductible as charitable contributions if the company promotes the common good and general welfare of the community through its primary activity of providing fire and ambulance service, even if the company serves the area in which the taxpayer resides. Rev. Rul. 74-361, 1974-2 C.B. 159; Rev. Rul. 80-77, 1980-1 C.B. 56.

Fire engine. The donation of a mere right to use the taxpayer's property such as allowing a municipality fire department to house a fire engine in the taxpayer's garage, does not qualify as a deductible charitable contribution because the right to use property does not constitute an undivided portion of the taxpayer's entire interest in the property. Logan v. Commissioner, T.C. Memo. 1994-445.

Fire. A fire may result in a deductible casualty loss, unless the taxpayer either willfully set the fire or paid someone else to set it. Code Section 165(c)(3).

Fishing trip. The cost of entertaining guests on a hunting or fishing trip may be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions if the entertainment is associated with or directly related to the taxpayer's work. Sanitary Farms Dairy, Inc. v. Commissioner, 25 T.C. 463 (1955).

Flood. Flood damage may be deductible as a casualty loss. Reg. Section 1.165-7(b)(4)(ii).

Fluctuation in value. Losses that result from a fluctuation in value that decreases the market value of a taxpayer's property are not deductible as casualty losses. Chamales v. Commissioner, T.C. Memo. 2000-33.

Food – Entertainment expense. Any item that can be treated as either a gift or entertainment generally will be considered entertainment and as such may be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions if it is either associated with or directly related to the taxpayer's work. Reg. Section 1.274-2(b)(1)(iii)(a). However, if the taxpayer gives a customer prepackaged food or beverages for the customer to use at a later date, the food or beverage is treated as a gift. Reg. Section 1.274-2(b)(1)(iii)(b).

Food – Medical expense. If special food or beverage is used by an individual with a medical problem merely as a substitute for food or beverage normally consumed to satisfy nutritional requirements, the cost of such food or beverage is a personal expense. Harris v. Commissioner, 46 T.C. 672 (1960). If certain foods are medically prescribed for the individual to meet special dietary needs caused by a medical problem, rather than merely to satisfy normal nutritional needs, the excess of the cost of the special food over comparable regular food is a deductible medical expense. Randolph v. Commissioner, 67 T.C. 481 (1976). While amounts paid by a taxpayer to participate in a weight-loss program as treatment for a specific disease or diseases (including obesity) diagnosed by a physician are expenses for medical care are deductible, the cost of purchasing diet food items is not deductible. Rev. Rul. 2002-19, 2002-16 I.R.B. 778.

Foreclosure. The foreclosure or repossession of property, due to the taxpayer's failure to make payments on a loan secured by the property, is treated as a sale or exchange that may give rise to gain or loss. Helvering v. Hammel, 311 U.S. 504 (1941). No deduction is allowed for a loss on the sale of property used for personal reasons such as the taxpayer's personal residence. Code Section 165(c).

Foreclosure - Casualty or theft loss. Where the taxpayer looses his home and furnishings in an eviction and foreclosure sale, the loss is not caused by any sudden, unexpected, and external event, but by his failure to make the proper payments on the mortgage loan, and thus does not give rise to a deductible casualty loss. Where the eviction is pursuant to court order, the eviction does not give rise to a deductible theft loss. Washington v. Commissioner, T.C. Memo. 1990-386, affd. by unpublished order, 930 F.2d 919 (6th Cir. 1991).

Foreign charitable organizations. Although contributions to a foreign church or charitable organization generally are not deductible, donations to certain Canadian, Israeli, and Mexican charitable organizations may be deducted as charitable contributions. Notice 99-47, 1999-2 C.B. 344; IRS Pub. 17, Your Federal Income Tax - For Individuals.

Foreign government. The confiscation of a taxpayer's property by a foreign government or foreign officials acting under color of legal authority is a personal loss and does not entitle the taxpayer to a theft or casualty loss deduction. Powers v. Commissioner, 36 T.C. 1191 (1961). However, a taxpayer's loss of household goods in a city that fell to enemy troops during war is deductible as a casualty loss even if the taxpayer cannot specify exactly how the property was destroyed. Popav. Commissioner, 73 T.C. 130 (1979).

Foreign housing. A self-employed individual living abroad, who does not receive housing expenses from an employer, can deduct housing costs in arriving at adjusted gross income. Code Section 911(c)(3)(A). The housing cost deduction for the self-employed individual is limited to the excess of his foreign earned income for the taxable year over the foreign earned income exclusion for the taxable year. Code Section 911(c)(3)(B).

NOTE: An individual living abroad who is an employee may exclude housing costs provided by his employer. Code Section 911(a)(2). The housing cost amount that is excluded reduces the amount of foreign earned income that may be excluded. Reg. Section 1.911-1(a).

Foreign Service representation expenses. An employee of the U.S. Foreign Service who is required to establish and maintain favorable relations in foreign countries may receive a non-taxable allowance for representation expenses such as entertainment, gifts, costs of official functions, and rental of ceremonial dress. If the employee's expenses are more than the allowance, the excess expenses may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 65-125, 1965-1 C.B. 88.

Foreign taxes. Foreign real property taxes and income taxes paid during the year are deductible, but only if the taxpayer does not elect to claim the foreign tax credit. Code Section 164(a). If the taxpayer uses the foreign earned income exclusion, he cannot also claim the foreign tax credit or the deduction for foreign income tax paid on that income. Code Section 911(d)(6).

Forfeited Income. No deduction is allowed for income forfeited as part of a taxpayer's sentence for engaging in the illegal activity that produced the income. Wood v. United States, No. 02-21320-CIV-HUCK/TURNOFF (S.D. Fla. Dec.17, 2003).

Forgery. The loss of property due to forgery such as a third party forging the taxpayer's signature on a check, may be deducted as a theft loss. Ander v. Commissioner, 47 T.C. 592 (1967).

Foster parents. Taxpayers may deduct some of the costs of being a foster parent or foster care provider if the child is placed with the taxpayer by a qualified agency and the taxpayer has no profit motive in providing the care and does not in fact make a profit. Rev. Rul. 77-280, 1977-2 C.B. 14. However, if the foster parent is able to claim a dependency exemption for the foster child, no charitable contribution deduction is allowed with respect to that child. CCM 200007030.

CAUTION: If the taxpayer shelters and supports various homeless and disturbed teenagers for humanitarian reasons, but the teenagers were not placed in her home by a qualified charitable organization, the taxpayer cannot claim a charitable contribution deduction for the cost of feeding and housing the teenagers. Dollar v. Commissioner, T.C. Memo. 1971-177.

Founder's fee. A specific fee paid as a condition for a retirement home's promise to provide lifetime care that includes medical care, commonly called a founder's fee, is a deductible medical expense when paid, whether it is paid in monthly installments or in a lump sum. Rev. Rul. 76-481, 1976-2 C.B. 82, clarified by Rev. Rul. 93-72, 1993-2 C.B. 77.

Franchise fee. A taxpayer who entered into a franchise agreement with the intention of making a profit and paid a nonrefundable franchise fee, but was forced to terminate the franchise agreement when the franchisor failed to provide support, training, and materials, can claim a loss deduction for the amount of the franchise fee. PLR 8815022.

Fraud. The taking of money from a taxpayer through fraud or misrepresentation may give rise to a deductible theft loss if the fraud or misrepresentation is illegal under state or local law. Rev. Rul. 71-381, 1971-2 C.B. 126.

Free food. The expense of distributing free food and beverages to the general public is fully deductible (not subject to the general 50 percent limitation on meal and entertainment expenses), if the taxpayer is providing meals or entertainment to the general public as a means of advertising or promoting goodwill in the community. Reg. Section 1.274-2(f)(2)(viii).

Fundraisers. Where consideration in the form of admissions or other privileges or benefits is received in connection with payments by patrons of fund-raising affairs, the taxpayer has the burden of establishing that part of the payment qualifies as a tax-deductible charitable contribution rather than as the purchase of privileges or benefits. Rev. Proc. 90-12, 1990-1 C.B. 471.

Fuel taxes. Federal excise taxes that are imposed on certain fuels cannot be deducted by the payor. Code Section 164.

NOTE: A credit or refund of the tax may be allowed to the ultimate purchaser if the purchaser will use the fuel for specified non-taxable purposes. Code Sections 6420, 6421, 6427.

Funeral expenses. Burial or funeral expenses, including the cost of a cemetery lot, are non-deductible personal expenses for which no deduction is allowed for federal income tax purposes. Carr v. Commissioner, T.C. Memo. 1979-400.

NOTE: Reasonable funeral expenses paid by the decedent's estate are deductible for estate tax purposes. Code Section 2053(a)(1).

Future income. No deduction is available for the loss of anticipated income or potential gain that the taxpayer had hoped to realize at a future date. Hort v. Commissioner, 313 U.S. 28 (1941).

Future interest in tangible personal property. The donation of a future interest in tangible personal property is deductible as a charitable contribution only after all intervening interests in and rights to the actual possession or enjoyment of the property have either expired or been turned over to someone other than the taxpayer or a related person or organization. Code Section 170(a)(3).

G

Gambling losses. Gambling losses, up to the amount of gambling winnings, are deductible as a miscellaneous itemized deduction not subject to the 2 percent floor. Code Section 165(d)(3); Code Section 67(b)(3).

Gas and oil expenses. Out-of-pocket car expenses such as gas and oil, are deductible as medical expenses when the car is used for medical reasons (Code Section 213(d)(1)(B)), or may be unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions when the car is used for business purposes (Reg. Section 1.162-2(a)). A taxpayer can use the standard mileage rate instead of his actual expenses for purposes of both the medical and the unreimbursed employee expense deductions. The standard mileage rate for the medical expense deduction is 12 cents per mile for 2003. The standard mileage rate for determining the deductible costs of operating an automobile for business purposes is 36 cents per mile for 2003 and 37.5 cents per mile for 2004 (Rev. Proc. 2002-61, 2002-39 I.R.B. 616; Rev. Proc. 2003-76, 2003-43 I.R.B. __).

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, gas and oil expenses cannot be deducted separately.

Gifts. Business-related gifts are deductible only to the extent that the expense for gifts made directly or indirectly to any individual during the same tax year does not exceed $25 and only if the gifts are ordinary and necessary business expenses. Code Section 274(b). Costs that do not add substantial value to a gift such as engraving on jewelry, gift wrapping, packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. Reg. Section 1.274-3(c).

Gifts in trust. If the taxpayer makes a gift to a charitable organization of a remainder interest of property held in trust, a charitable contribution deduction is allowed only if the trust is a charitable remainder annuity trust, a charitable remainder unitrust, or a pooled income fund. Code Section 170(f)(2)(A). If the taxpayer makes a gift of any other interest in property transferred in trust, a charitable contribution deduction is allowed only if the interest is in the form of a guaranteed annuity or if the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly) and the grantor is treated as the owner of such interest. Code Section 170(f)(2)(B).

Girl Scouts of America. Donations to the Girl Scouts are deductible as charitable contributions. Rev. Rul. 80-77, 1980-1 C.B. 56.

Golf. The expenses of playing golf, including transportation to the golf course, are not deductible as medical expenses even if the taxpayer's physician recommends golf as beneficial to the taxpayer's general health. Altman v. Commissioner, 53 T.C. 487 (1969).

Golf club membership. No deduction is permitted for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purposes. Code Section 274(a)(3). Clubs organized for business, pleasure, or other social purposes include, but are not limited to, country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussion. Reg. Section 1.274-2(a)(2)(iii)(a).

Goodwill Industries. Donations of money or property to Goodwill Industries are deductible as charitable contributions. IRS Pub. 526, Charitable Contributions.

Government-ordered demolition. The government-ordered demolition or relocation of a home that is unsafe to use because of a disaster may give rise to a deductible casualty loss. Code Section 165(k).

Governmental entities. Money or property donated to federal, state, and local governments is deductible as a charitable contribution if the contribution is solely for public purposes such as a gift to reduce the public debt. Code Section 170(c)(1).

Grave stone. The cost of a grave stone is not deductible as a medical expense. Estate of Libby v. Commissioner, T.C. Memo. 1955-180. Burial or funeral expenses also are non-deductible personal expenses for income tax purposes (Carr v. Commissioner, T.C. Memo. 1979-400), although reasonable funeral expenses are deductible for estate tax purposes. Code Section 642(g); Code Section 2053(a)(1).

Ground rent. Annual or periodic redeemable ground rent payments are deductible as mortgage interest. Code Section 163(c).

Guide dogs. The cost and care of guide dogs and other animals aiding the blind, deaf, and disabled are deductible as medical expenses. Reg. Section 1.213-1(e)(1)(iii) (seeing eye dog); Rev. Rul. 68-295, 1968-1 C.B. 92 (dog to assist deaf

H

Hair transplant. The cost of a hair transplant is not a deductible medical expense because the procedure is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease. Code Section 213(d)(9).

Hair removal. The cost of removing the taxpayer's unwanted facial hair due to the taxpayer's personal preference is not deductible as a medical expense. PLR 8042075.

Handicapped access. A taxpayer may elect to deduct up to $15,000 per year of architectural and transportation barrier removal expenses incurred for the purpose of making any facility or public transportation vehicle owned or leased by the taxpayer for use in his trade or business more accessible to and usable by handicapped and elderly individuals. Code Section 190(a).

Harassment. The Tax Court held that the alleged harassment of the taxpayer by his neighbors was not a sudden or cataclysmic event that caused a decline in the value of his house to be a deductible casualty loss. Torre v. Commissioner, T.C. Memo. 2001-218.

Hauling tools. Although hauling tools or instruments in the taxpayer's car while commuting to and from work does not make the taxpayer's car expenses deductible, any additional costs for hauling the tools such as for renting a trailer to tow behind the car, may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 75-380, 1975-2 C.B. 59.

Health club dues. The expenses of belonging to a health club generally are not deductible as medical expenses, even if the taxpayer's job requires him to stay in excellent physical condition or if the taxpayer's doctor recommends it for his general health. Rev. Rul. 78-128, 1978-1 C.B. 39.

Health insurance. Medical and hospital insurance premiums are deductible as a medical expense. Code Section 213(d)(1)(D). A self-employed individual may deduct a certain percentage of the amount paid for health insurance coverage for himself and his family. For 2002, the applicable percentage is 70 percent; for 2003 and subsequent years, it increases to 100 percent. Code Section 162(l)(1).

Health Maintenance Organization (HMO) fees. Amounts paid to entitle the taxpayer or the taxpayer's spouse or dependents to receive medical care from an HMO are treated as medical insurance premiums and are deductible as medical expenses. Publication 502, Medical and Dental Expenses.

Hearing aids. The cost of a hearing aid and the batteries to operate it is deductible as a medical expense. Rev. Rul. 55-261, 1955-1 C.B. 307.

NOTE: A hearing aid is considered a solely personal item even if it is used in the taxpayer's work or business. Thus, an attorney was not allowed to claim the cost of his hearing aid as a business expense even if its use is necessary for his successful law practice. Bakewell v. Commissioner, 23 T.C. 803 (1955).

Hobby expenses. The expenses of a hobby or not-for-profit activity are deductible only up to the amount of income from the hobby. Code Section 183(b).

Holistic healing. The cost of treatment at a holistic healing center is a deductible medical expense. Crain v. Commissioner, T.C. Memo. 1986-138.

Home equity loan. Interest paid on a home equity loan of up to $100,000, where the loan is secured by the taxpayer's home, is deductible. Code Section 163(h)(3).

Home health care expenses. The medical components of home health care expenses incurred either as part of hospice care or as approved in lieu of hospitalization due to personal injury or sickness are deductible as medical expenses. PLR 200028007.

Home improvement loan. Points paid on a loan to improve the taxpayer's main home are deductible as interest expenses in the year paid. Code Section 461(g)(2).

Home improvements. A homeowner cannot deduct the costs of any improvements that materially add to the value of the home, considerably prolong its useful life, or adapt it to new uses such as putting a recreation room in an unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving a driveway. These costs must be added to the homeowner's basis in the home. Paxman v. Commissioner, 50 T.C. 567 (1968).

Home improvements – Medical related. The cost of permanent improvements to the taxpayer's home to accommodate a disability of the taxpayer or the taxpayer's spouse or dependents can be deducted as medical expenses if they do not increase the value of the property. Reg. Section 1.213-1(e)(1)(iii). If the accommodations do increase the value of the property, the deduction is limited to that portion of the cost that exceeds the increased value of the property. Reg. Section 1.213-1(e)(1)(iii).

Home leave. U.S. citizens who are members of the Foreign Service and are required to take "home leave" after completing three years of continuous service abroad, a period of leave that can be used to take care of certain personal matters such as medical and dental checkups, buying a new wardrobe, and visiting relatives. Amounts paid for travel, meals, and lodging while on home leave are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 82-2, 1982-1 C.B. 27.

Home mortgage interest. Interest paid on a loan secured by the taxpayer's home, including a second home, is deductible. The loan may be a mortgage to acquire the home, a second mortgage, a line of credit, or a home equity loan. Code Section 163(h)(3). A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Reg. Section 1.1034-1(c)(3).

Home office. A taxpayer may be able to deduct a part of the operating expenses and depreciation of her home as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions if she uses a portion of the home regularly and exclusively for her work for the convenience of the taxpayer's employer. Code Section 280A(c)(1).

Home repairs. Home repairs are non-deductible personal expenses. Sexcius v. Commissioner, T.C. Memo. 1997-98.

Home sale. The expenses of buying or selling a home are not deductible moving expenses even if the sale and purchase are connected to a move to allow the taxpayer to start work at a new location. Code Section 217(b)(1). Similarly, a loss sustained on the sale of property used by the taxpayer as her personal residence is not deductible. Reg. Section 1.165-9(a).

Home security. The cost of hiring security personnel to guard the taxpayer's personal residence is a non-deductible personal expense. Holmes v. Commissioner, T.C. Memo. 1983-442. The cost of installing and monitoring a home protection service system is not deductible as a dependent care expense even if the taxpayers install the system in part to protect their 10-year-old child. PLR 8437055.

NOTE: If the taxpayer uses a portion of the home regularly and exclusively as a home office, the percentage of the cost attributable to business use may be deductible as a trade or business expense. Rev. Rul. 86-148, 1986-2 C.B. 43.

Homeowner association. Annual assessments paid to a homeowners association by its members for the exclusive purpose of promoting the recreation, health, safety, and welfare of the residents and for maintaining common areas of a residential housing project are not deductible as real property taxes. Rev. Rul. 76-495, 1976-2 C.B. 43. Donations of money or property to a homeowners association are not deductible as charitable contributions. IRS Pub. 526, Charitable Contributions.

Homeowner's insurance. Amounts paid for homeowner's insurance premiums are non-deductible personal expenses. Reg. Section 1.262-1(b)(2).

Home worker. A home worker performing work according to specifications furnished by the person for whom the services are performed on materials or goods furnished by such person and that are required to be returned to that person or a person designated by her may qualify as a statutory employee who can deduct employee business expenses above the line in computing adjusted gross income, rather than as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 90-93, 1990-2 C.B. 33.

Hospital bed. The expense of purchasing a hospital bed, which was prescribed by the taxpayer's doctor for the relief of osteoporosis of the spine, qualifies as a deductible medical expense. PLR 8036015.

Hospital care. The cost of in-patient care (including amounts paid for meals and lodging), at a hospital or similar institution is deductible as a medical expense if the main reason for being there is to receive medical care. Reg. Section 1.213-1(e)(1)(v).

Hospital services. Fees for hospital services, lab work, therapy, nursing services, surgery, and ambulance hire are deductible as medical expenses. Reg. Section 1.213-1(e)(1)(ii).

Hospitals. Donations to a non-profit hospital are deductible as charitable contributions. Code Section 170(b)(1)(A)(3).

Host or hostess expenses. A person who hosts a party at which sales are made such as a Tupperware party, can deduct out-of-pocket party expenses, subject to the 50 percent limit for meal and entertainment expenses, as miscellaneous itemized deductions subject to the 2 percent limit, but only up to the amount of income received for giving the party. IRS Pub. 911, Direct Sellers.

Hotel room. A taxpayer whose business trip is overnight or long enough that she must stop for sleep or rest to properly perform her duties may deduct the cost of a hotel room as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 75-170, 1975-1 C.B. 60.

Houseboat. A boat that has sleeping, cooking, and toilet facilities is treated as a home for purposes of the home mortgage interest deduction. Reg. Section 1.163-10T(p)(3)(ii).

Household goods – Moving expense. The costs of packing, crating, and transporting household goods and personal effects of the taxpayer and members of her household from her former home to her new home in connection with the start of work at a new location are deductible as moving expenses. Code Section 217(b)(1)(A).

Household goods – Charitable deduction. The fair market value of used household goods (usually much lower than the price paid when new), donated to a qualified organization is deductible as a charitable contribution. Daniel v. Commissioner, T.C. Memo 1997-328.

Household help. The cost of household help is not deductible as a medical expense, even if the taxpayer's doctor recommends it for the taxpayer's general health or if it allows a household member who is ill to have complete rest. Rev. Rul. 76-106, 1976-1 C.B. 71. However, certain expenses attributable to services rendered directly to an ill household member that are of the type that would otherwise be performed in a hospital qualify as medical expenses. Bye v. Commissioner, T.C. Memo. 1972-57.

Hunting trip. The cost of entertaining guests on a hunting or fishing trip may be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions, if the entertainment is associated with or directly related to the taxpayer's work. Sanitary Farms Dairy, Inc. v. Commissioner, 25 T.C. 463 (1955).

Hurricane. Damage such as wind and flood damage caused by a hurricane may be deductible as a casualty loss. Reg. Section 1.165-7(b)(4)(ii).

Hypoglycemia. A taxpayer suffering from hypoglycemia, a disease that can be mitigated only by taking frequent feedings of high quality protein, may deduct the additional expense incurred in adhering to a diet prescribing the extra intake of high quality proteins in order to meet the additional "abnormal" dietary needs caused by her disease. Von Kalb v. Commissioner, T.C. Memo 1978-366.

I

Illegal bribes and kickbacks. No deduction is allowed for any payment to a government official or any other person that is an illegal bribe or kickback, including rebates, kickbacks, and bribes under Medicare or Medicaid. Code Section 162(c).

Illegal drugs. No deduction is allowed for any amount paid or incurred in carrying on a trade or business that consists of illegal trafficking in controlled substances. Code Section 280E. Amounts paid to obtain a controlled substance such as marijuana, in violation of federal law, are not deductible as medical expenses even if state law permits the use of the substance when purchased with a physician's prescription. Rev. Rul. 97-9, 1997-1 C.B. 77.

Illegal operation. Illegal medical operations or treatments are not deductible medical expenses. Reg. Section 1.213-1(e)(1)(ii).

Impairment-related work expenses. A taxpayer with a physical or mental disability that limits his employment or substantially limits one or more of his major life activities may claim a miscellaneous itemized deduction, not subject to the 2 percent limit, for attendant care services at his place of work and other workplace-related expenses that are necessary for him to be able to work. Code Section 67(b)(6) and Code Section 190(b)(3).

Improvements. Permanent improvements made to increase the value of property are capital expenses and thus generally not deductible. Code Section 263(a)(1).

NOTE: A taxpayer may elect to deduct the cost of certain tangible property used in a trade or business. Code Section 179.

Inaugural committee. A contribution to an inaugural committee is not deductible as a charitable contribution. Rev. Rul. 77-283, 1977-2 C.B. 72.

Inaugural event. No deduction is allowed for any amount paid for admission to an inaugural ball, inaugural gala, inaugural parade, or inaugural concert, or to any similar event that is identified with a political party or a political candidate. Code Section 276(a)(3). No deduction is allowed for any amount paid for admission to an equivalent event for an unsuccessful candidate. Reg. Section 1.276-1(e).

Incarceration. Amounts paid to reimburse a county for the expenses of the upkeep and maintenance of the taxpayer's child while incarcerated in a juvenile detention center are non-deductible personal expenses rather than personal property or other deductible taxes. Collins v. Commissioner, T.C. Memo. 1984-104.

Income in respect of a decedent. A taxpayer can deduct, as a miscellaneous itemized deduction not subject to the 2 percent limit, the federal estate tax attributable to income in respect of a decedent that the taxpayer, as beneficiary, includes in her gross income. Bridges v. Commissioner, 64 T.C. 968 (1975).

Indemnity bond. A taxpayer who must post an indemnity bond to replace taxable securities that are mislaid, lost, stolen, or destroyed can deduct the premium paid to buy the bond and the related incidental expenses as investment expenses, subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 62-21, 1962-1 C.B. 37.

Individual retirement arrangement (IRA). A taxpayer may claim an above-the-line deduction for contributions to a traditional IRA up to the lesser of $3,000 or the taxpayer's compensation for taxable years 2003 and 2004. Code Section 219(b)(1), (b)(5). The deduction is subject to a phaseoutfor taxpayers who are active participants in employer sponsored retirement plan whose adjusted gross income exceeds the specified threshold. The deduction amount increases to $4,000 for the years 2005 through 2007. It increases to $5,000 for 2008, after which it will be subject to a yearly cost-of-living adjustment. Code Section 219(b)(5). A married taxpayer filing jointly can deduct contributions to an IRA up to the lesser of the applicable deduction amount for the year the contribution is made, or his spouse's compensation, even if he personally has little or no compensation. Code Section 219(c)(1). A special catch-up provision increases the deductible amount by $500 for the years 2002 through 2005 if the taxpayer is age 50 or more by the end of the taxable year. The additional deductible amount increases to $1,000 for the year 2006 and years thereafter. Code Section 219(b)(5)(B).

Individual retirement account fees. Reasonable IRA trustee fees in excess of the maximum amount deductible for IRA contributions are deductible investment expenses subject to the 2 percent floor on miscellaneous itemized deductions, but only if they are billed and paid separately. Rev. Rul. 84-146, 1984-2 C.B. 61.

Individuals. Donations of money or property to individuals are not deductible as charitable contributions. Code Section 170(c).

Infertility treatment. Treatments received to overcome an inability to have children, including procedures such as in vitro fertilization (including temporary storage of eggs or sperm), and surgery (including an operation to reverse prior surgery that prevents having children), are deductible as a medical expense. PLR 200318017.

Inflation. The loss in purchasing power caused by inflation, or a rise in the price level of currently produced goods and services, is not a deductible loss. Crossland v. Commissioner, T.C. Memo. 1976-59.

Insect damage. Damage caused by insects generally is not considered sufficiently sudden to give rise to a deductible casualty loss, even if the manifestation of the damage is sudden such as when a building collapses due to termite damage. Rev. Rul. 63-232, 1963-2 C.B. 97. The same principle applies to insect damage to trees, shrubs, grass or other plants. Rev. Rul. 57-599, 1957-2 C.B. 142, modified by Rev. Rul. 79-174, 1979-1 C.B. 99. However, the sudden destruction of pine trees by a massive southern pine beetle attack has been held to give rise to a deductible casualty loss. Black v. Commissioner, T.C. Memo. 1977-337.

Insider trading. An investment banker whose sale of insider trading information was sporadic and represented a limited opportunistic transactional relationship with another individual was not in the trade or business of insider trading and thus cannot claim a business expense deduction for the legal fees for his defense in litigation that arose in connection with the insider trading. Wang v. Commissioner, T.C. Memo 1998-389, aff'd, No. 99-70642 (9th Cir. 5/24/02).

Institutional care. Regardless of whether the institution is called a sanitarium, rest home, nursing home, or any other name, costs (including meals and lodging), are deductible medical care expenses if an individual is in the institution primarily because her condition requires the availability of medical care. Reg. Section 1.213-1(e)(1)(v)(a). It is immaterial whether medical care is furnished in a federal or state institution or in a private institution. Reg. Section 1.213-1(e)(1)(v)(c).

Insulin. The cost of insulin is a deductible medical expense. Code Section 213(b).

Insurance – Automobile. The cost of automobile insurance for an automobile uses in the taxpayer’s work is deductible as an unreimbursedemployee business expense subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer chooses to deduct his actual expenses. Heuer v. Commissioner, 32 T.C. 947 (1959).

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, insurance expense cannot be deducted separately.

Insurance - Charitable split-dollar life insurance arrangements. No deduction will be allowed where a taxpayer makes a donation to a charity with the understanding that the charity will use the transferred funds, or a portion thereof, to pay the premiums of a life insurance policy on the taxpayer's life and the death proceeds will be split between the charity and the taxpayer's beneficiaries at the time of the taxpayer's death. Code Section 170(f)(10).

Insurance – Accident. In the case of an insurance contract under which amounts are payable for other than medical care (such as a policy providing an indemnity for loss of income or for loss of life, limb, or sight), no amount shall be treated as paid for insurance covering expenses of medical care unless the charge for such insurance is separately stated, either in the contract or in a separate statement. Reg. Section 1.213-1(e)(4)(i).

Insurance policy. No charitable contributions deduction is allowed for a gift of the cash surrender value of a life insurance where the donor retains the right to name or change the beneficiary of the policy, whether or not the policy is fully paid up, because it is a gift of a partial interest. Rev. Rul. 76-143, 1976-1 C.B. 63.

Insurance premiums. Medical and hospital insurance premiums are deductible as a medical expense. Code Section 213(d)(1)(D). Prescription drug insurance is also deductible. Rev. Rul. 68-433, 1968-2 C.B. 110. Premiums paid by a taxpayer under 65 voluntarily for Medicare A coverage are deductible medical expenses. Rev. Rul. 79-175, 1979-1 C.B. 117. Premiums for Medicare B coverage are also deductible medical expenses. Code Section 213(d)(1)(D). Premiums for disability insurance and indemnification for loss of work are not deductible medical expenses. Rev. Rul. 55-331, 1955-1 C.B. 271, modified by, Rev. Rul. 68-212, 1968-1 C.B. 91.

NOTE: A self-employed individual may take a credit (up to the amount of the taxpayer’s earned income), for the full amount paid for insurance which constitutes medical care for the taxpayer, his spouse, or his dependents. Code Section 162(l).

Intangible personal property tax. An intangible personal property tax levied by a state against notes, bonds, and other obligations for the payment of money that are secured by a mortgage, deed of trust, or other lien upon real property situated in the state may be deductible as a tax or, if more closely incurred in connection with obtaining construction loans than in acquiring the underlying real property, must be amortized over the terms of the construction loans. Sleiman v. Commissioner, T.C. Memo. 1997-530.

Interest - 401(k) loan or loan from other qualified employer plan. Interest on a loan secured by assets in a 401(k) or other qualified employer plan attributable to elective deferral is not deductible. A qualified employer plan includes a qualified pension, profit-sharing, or stock bonus plan described in Code Section 401(a), including trusts that are exempt under Code Section 501(a); a qualified annuity plan described in Code Section 403(a); a qualified tax-sheltered annuity plan; or a plan for government employees established and maintained by the federal or a state government or their political subdivisions and agencies. Code Sections 72(p)(3), 72(p)(4).

Interest - Cooperative housing corporation mortgage. Tenant-stockholders of cooperative housing corporations may deduct their proportionate share of the real estate taxes and interest paid by the corporation, even though they are not personally liable for these expenses. Code Section 216(a).

Interest - Educational loans. The interest on educational loans is in general considered personal interest, and is not deductible.

NOTE: Interest paid on qualified education loans up to $2,500 is deductible above the line. The amount deductible is phased out for taxpayers with adjusted gross incomes in excess of $50,000 and is completely eliminated for taxpayers with adjusted gross incomes of $65,000 or more ($100,000 and 130,000 if filing a joint return).

Interest - Educational loans. Interest on income tax deficiencies and additions to tax is generally considered to be non-deductible personal interest of the individual taxpayer. Crouch v. Commissioner, T.C. Memo. 1995-289.

Interest - Investment interest. If a taxpayer borrows money to buy property to hold for investment, the interest on the loan is deductible, but only up to the amount of the taxpayer's net investment income. Code Section 163(d)(1).

CAUTION: Interest on money borrowed to purchase investments that produce tax-exempt income is not deductible. Code Section 265.

Interest - Joint obligors. If two or more taxpayers are jointly and severally liable for a debt, each taxpayer may take a deduction for the amount of interest he pays. Arrigoni v. Commissioner, 73 T.C. 792 (1980), acq., 1980-2 C.B. 1.

Interest - Mortgage. Interest paid on a mortgage or home equity loan secured by an individual's taxpayer's residence is deductible. Code Section 163(h)(3).

Interest - Personal. Personal interest such as interest on a loan to purchase an automobile for personal use and credit card interest incurred for personal expenses, is not deductible. Code Section 163(h).

Interest - Life insurance. Interest on money borrowed to purchase or carry a single premium life insurance, endowment, or annuity contract is not deductible. Code Section 264(a)(2).

Inventory. As a general rule, the deduction for charitable contributions of appreciated inventory property is limited to the taxpayer's basis in the contributed property. Code Section 170(e)(1)(A). However, an exception to the general rule for qualified corporate contributions of inventory to be used for the case of the ill, the needy, or infants provides that the amount of the deduction is equal to the taxpayer's basis in the property plus one-half of the unrealized appreciation, not to exceed twice the taxpayer's basis in such property. Code Section 170(e)(3)(B).

Investigation. The costs of investigating publicly held companies with a view towards the possible purchase of their stock are non-deductible capital expenditures, to be added to the basis of the stock acquired. Martin v. Commissioner, T.C. Memo 1996-503.

Investment expenses. Ordinary and necessary expenses paid or incurred to produce or collect income or to manage property held for producing income are deductible as miscellaneous itemized deductions subject to the 2 percent floor. Code Section 212.

Investment expenses -Custodian fees. Custodian fees charged by a broker that are related to investments that produce taxable income are deductible investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. Publication 17, Your Federal Income Tax - For Individuals.

Investment expenses - Estate planning advice. Fees for estate planning advice with regard to income taxes is deductible as an investment expense subject to the 2 percent floor on miscellaneous itemized deductions. Luman v. Commissioner, 79 T.C. 846 (1982).

Investment expenses – Imputed interest. Investment property includes interest-free loans made to a tax-exempt organization that yields gross income in the form of interest imputed under Code Section 7872, so a taxpayer may deduct interest paid on the line of credit indebtedness used to obtain the funds to make the loans. PLR 9526003.

Investment expenses - Interest. If a taxpayer borrows money to buy property to hold for investment, the interest on the loan is deductible, up to the amount of the taxpayer's net investment income. Because a non-recourse debt that lacks economic substance is disregarded for federal tax purposes, interest paid on the debt is not deductible as investment interest. Ames v. Commissioner, T.C. Memo. 1990-87. A taxpayer who obtains a loan from a commercial lending institution and uses the proceeds to make an interest-free loan to an exempt university, but makes no attempt to collect the loan and in fact forgives a portion of it, may not deduct the interest paid to obtain its loan. Rev. Rul. 74-579, 1974-2 C.B. 383.

CAUTION: No deduction is allowed for interest incurred to produce tax-exempt income. Code Section 163(d)(1).

Investment expenses - Investment advice. Fees paid for counsel and advice about investments that produce taxable income, including investment advisory services, are deductible investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.212-1(g), Honodel v. Commissioner, 76 T.C. 351 (1981), aff'd, 722 F.2d 1462 (9th Cir. 1984).

Investment expenses - Investment fees. Fees related to investments that produce taxable income are deductible investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. Code Section 212; Publication 529, Miscellaneous Deductions.

Investment expenses - Investment club expenses. A member of an investment club can deduct his share of the investment expenses of the club that are related to the production of taxable income. Publication 529, Miscellaneous Deductions.

Investment expenses – Margin interest. Interest paid to a stockbroker on amounts owed for stock which had been purchased on margin is deductible as investment interest. Peters v. Commissioner, T.C. Memo. 1993-259.

Investment expenses - Seminars. No deduction is available for the cost of attending a convention, seminar, or similar meeting for investment purposes. Code Section 274(h)(7).

Investment expenses - Service charges on dividend reinvestment plans. Dividend reinvestment plans. Service charges paid by a subscriber to a dividend reinvestment plan, which permits the subscriber to use his dividends to purchase more shares of stock in the corporation instead of receiving cash, are investment expenses deductible as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 70-627, 1970-2 C.B. 159.

Investment expenses - Travel. Ordinary and necessary travel expenses related to investments that produce taxable income are deductible as investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. To be ordinary and necessary, the travel expenses must be reasonable in amount and must bear a reasonable and proximate relation to the investment. However, no deduction is allowed for travel or other costs of attending a convention, seminar, or similar meeting for investment purposes. Code Section 274(h)(7).

Involuntary conversion. Special rules apply to the treatment of any gain or loss from the compulsory or involuntary conversion of property used in a trade or business or a capital asset held for more than one year in connection with a trade or business or a transaction entered into for profit. Code Section 1231(a)(3)(A)(ii). If the recognized gain from such property combined with the recognized gain from the sale or exchange of other property used in a trade or business exceeds the recognized losses from all such property, the gains and losses are treated as long-term capital gains or long-term capital losses. Code Section 1231(a)(1). If the recognized gains from all such property do not exceed the recognized losses from all such property, the gains and losses are treated as ordinary income and losses. Code Section 1231(a)(2).

Iron lung. The expenses of operating an iron lung and the associated equipment necessary to its operation are deductible medical expenses. Rev. Rul. 55-261, 1955-1 C.B. 307.

Israeli charitable organizations. Under an income tax treaty with Israel, donations to certain Israeli charitable organizations may be deducted as charitable contributions for federal tax purposes, with the amount of the deduction limited to 25 percent of the taxpayer's adjusted gross income from Israeli sources. Pub. 526, Charitable Contributions.

J

Jewelry. The accidental loss or disappearance of property may be deductible as a casualty loss if it results from a sudden, unusual, or unexpected event such as the loss of a diamond from a ring when a car door is slammed on the taxpayer's hand (White v. Commissioner, 48 T.C. 430 (1967), acq., 1969-1 C.B. 21) or when the ring is accidentally ground up in a garbage disposal (William H. Carpenter, T.C. Memo. 1966-228) but not when the loss occurs while traveling but is not due to an identifiable event of a sudden, unexpected, or unusual nature. PLR 8019090.

Job search expenses. The expenses of looking for a new job in the taxpayer's present occupation are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Cremona v. Commissioner, 58 T.C. 219 (1972).

Journals. The costs of subscriptions to professional journals and trade magazines related to the taxpayer's work may be deducted as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions.

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

K

Kickbacks. No deduction is allowed for any payment to a government official or any other person that is an illegal bribe or kickback, including rebates, kickbacks, and bribes under Medicare or Medicaid. Code Section 162(c).

Kidnapping. If money or property is obtained from a taxpayer through a kidnapping for ransom, the taxpayer may treat the amount thus extorted as a deductible theft loss. Rev. Rul. 72-112, 1972-1 C.B. 60.

Kidney transplant cost. The costs, including transportation expenses, of a kidney transplant are deductible medical expenses. The recipient may deduct expenses paid for the donor (Rev. Rul. 68-452, 1968-2 C.B. 111) or a donor or prospective donor may deduct the expenses paid in connection with the transplant. Rev. Rul. 73-189, 1973-1 C.B. 139.

L

Labor unions. Dues and other payments to a labor union are deductible as miscellaneous itemized deductions subject to the 2 percent floor if such payment is a condition of initial or continued membership in the union and no portion of the payment serves to defray an expense of a personal nature. Rev. Rul. 72-463, 1972-2 C.B. 93. Money or property donated to a labor union is not deductible as a charitable contribution. Notice 88-120, 1988-2 C.B. 454.

Laboratory breakage. An employee may be able to deduct laboratory breakage fees as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions. Brooks v. Commissioner, 30 T.C. 1087 (1958).

Laboratory fees - Educational expenses. Lab fees for a work-related educational program may be deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. IRS Pub. 529, Miscellaneous Deductions.

Laboratory fees - Medical expenses. Laboratory fees that are part of a taxpayer's medical care are deductible medical expenses. Rev. Rul. 73-189, 1973-1 C.B. 139.

Landslide. A landslide can be the cause of a deductible casualty loss. Heyn v. Commissioner, 46 T.C. 302 (1966), acq., 1967-1 C.B. 2.

CAUTION: Loss to the value of property caused by the occurrence of a landslide that did not actually damage the property is not a deductible casualty loss. Pulversv. Commissioner, 48 T.C. 245 (1967), aff'd per curiam, 407 F. 2d 838 (9th Cir. 1969).

Larceny. A theft loss may arise from the taking of money or property from a taxpayer by larceny. Reg. Section 1.165-8(d); Rev. Rul. 72-112, 1972-1 C.B. 60.

Laser eye surgery. The cost of surgery to improve vision is deductible as a medical expense if it is done primarily to promote the correct function of the eye. Rev. Rul. 2003-57, 2003-22 I.R.B. 959.

Late payment charges. Although a charge imposed on the taxpayer for a late payment on a mortgage generally does not constitute deductible home mortgage interest (Witherspoon v. Commissioner, T.C. Memo. 1994-593), the charge is deductible as home mortgage interest if it is not imposed for a specific service performed in connection with the mortgage loan. West v. Commissioner, T.C. Memo. 1991-18, aff'din unpub. op., 967 F.2d 596 (9th Cir. 1992). However, where the late payment charges were made to compensate the bank for the additional processing costs resulting from delinquent real estate loan payments, the charges are not deductible home mortgage interest. West v. Commissioner, T.C. Memo. 1991-18.

Laundry. The cost of dry cleaning and laundry while away from home on business may be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 63-145, 1963-2 C.B. 86.

Lavish entertainment. No deduction is allowed for the cost of entertainment to the extent that it is lavish or extravagant. Reg. Section 1.274-1. Expenses will not be disallowed just because they exceed a fixed dollar amount or are incurred at deluxe restaurants, hotels, nightclubs, or resorts. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Law school. The cost of obtaining a law degree is not deductible because it prepares the taxpayer for a new line of work. Weiler v. Commissioner, 54 T.C. 398 (1970).

Lawn care. Expenditures for lawn care and landscaping at the taxpayer's personal residence are non-deductible personal expenses. Rev. Rul. 62-80, 1962-2 C.B. 52. This is the case even if the taxpayer has a severe allergy so that his doctor has directed him not to perform lawn care activities. Taylor v. Commissioner, T.C. Memo. 1987-399.

Lawn mower. The cost of a riding lawn mower is a non-deductible personal expense, even if a doctor recommends the purchase due to the taxpayer's back problems. Lepson v. Commissioner, T.C. Memo. 1982-304.

Lead-based paint removal. Amounts paid pursuant to a doctor's recommendation for the removal of lead-based paint from any surfaces in a house that is in poor repair or readily accessible to the owner's dependent child suffering from lead poisoning are deductible as medical expenses. Rev. Rul. 79-66, 1979-1 C.B. 114.

Learning disability. Tuition fees paid to a special school for a child who has severe learning disabilities caused by mental or physical impairments, including nervous system disorders, are deductible as medical expenses if the alleviation of such impairments are a principal reason for the child's attendance at that special school. Reg. Section 1.213-1(e)(1)(v)(a). Tutoring fees paid on a doctor's recommendation for the child's tutoring by a teacher who is specially trained and qualified to work with children who have severe learning disabilities also are deductible as medical expenses. Rev. Rul. 78-340, 1978-2 C.B. 124.

Leave-based donation programs. An employee who participates in a leave-based donation program under which employees forgo vacation, sick days, or personal leave in exchange for employer contributions to charitable organizations may not claim a charitable contribution deduction based on the value of the forgone leave that has been excluded from the employee's income or wages. Notice 2001-69, 2001-46 I.R.B. 491.

CAUTION: The IRS stated in Notice 2001-69 that it would not assert that payments made under leave-based donation programs were gross income or wages to the donor employee. The IRS reversed its position in Notice 2003-1, 2003-2 I.R.B. 257, and announced that the interim guidance provided in Notice 2001-69 would not apply to payments made after January 1, 2003.

Legal expenses - Beneficiary of estate. The beneficiary of a trust can deduct legal and accounting fees incurred in a dispute over a trustee's management of the trust assets as expenses for the production or collection of income subject to the 2 percent floor on miscellaneous itemized deductions. Ross v. Commissioner, T.C. Summary 2001-81.

Legal expenses - Collection of alimony. Legal expenses paid or incurred to collect taxable alimony are deductible as expenses incurred in the production of income subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.262-1(b)(7); Wild v. Commissioner, 42 T.C. 706 (1964).

Legal expenses - Commitment to mental institution. The legal expenses paid in committing the taxpayer's spouse to a mental institution are deductible as medical expenses where, in the absence of that commitment, the patient would not have been able to receive treatment. Gerstacker v. Commissioner, 414 F.2d 448 (6th Cir. 1969).

Legal expenses - Disability benefits. Legal expenses incurred to secure social security disability payments are deductible expenses for the collection or production of income subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 87-102, 1987-2 C.B. 78.

Legal Expenses - Divorce. Legal expenses relating to divorce generally are non-deductible personal expenses. However, the expenses of legal advice relating to the tax consequences of a divorce are deductible as miscellaneous itemized deductions subject to the 2 percent floor if the bill specifies how much is for tax advice and the determination of that amount is done in a reasonable way. Rev. Rul. 72-545, 1972-2 C.B. 179. Further, legal expenses paid or incurred to collect taxable alimony are deductible as miscellaneous itemized deductions subject to the 2 percent floor. Reg. Section 1.262-1(b)(7); Wild v. Commissioner, 42 T.C. 706 (1964).

Legal expenses - Executor of estate. Legal fees that an executor of an estate incurs that protect the right to receive commissions or fees for serving as executor are deductible as expenses for the production or collection of income subject to the 2 percent floor on miscellaneous itemized deductions.

CAUTION: Legal fees incurred to protect an executor from liability for mismanagement of an estate are not deductible because they are not incurred for the production or collection of the executor's commissions or fees for serving as executor. Siebling v. Commissioner, T.C. Memo 1994-233

Legal expenses - Income related. Legal expenses incurred in attempting to produce or collect taxable income are deductible as miscellaneous itemized deductions subject to the 2 percent floor. Reg. Section 1.212-1(l), Reg. Section 1.67-1T.

Legal expenses - Job related. Legal expenses are deductible as miscellaneous itemized deductions subject to the 2 percent floor if they are related to either doing or keeping the taxpayer's job such as expenses paid to defend against criminal charges arising out of the taxpayer's trade or business. Caspers v. Commissioner, 44 T.C. 411 (1965).

Legal expenses - Personal. Personal legal expenses are not deductible. United States v. Gilmore, 372 U.S. 39 (1963).

Legal expenses - Taxes. Legal expenses related to the determination, collection, or refund of federal, state, and local taxes are deductible as miscellaneous itemized deductions subject to the 2 percent floor. Code Section 212(3), Code Section 67. Foreign taxes are also included under this rule. Rev. Rul. 69-2, 1962-1 C.B. 35.

Liability insurance. Insurance premiums paid for protection against personal liability for wrongful acts on the job may be deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 76-277, 1976-2 C.B. 41.

Licenses and regulatory fees. The cost of maintaining a license or certification that is essential to the taxpayer's work may be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions, but the original cost of obtaining a license that is good or renewable for an indefinite period is a capital expenditure. Nachman v. Commissioner, 191 F.2d 934 (5th Cir. 1951).

Life-care fee paid to retirement home. The portion of a founder's fee and monthly fee paid by individuals in connection with their life-care residence at a retirement home that is properly allocable to medical care is deductible as a medical expense in the year paid; however, the portion of the founder's fee used to construct the health facilities is not deductible. Rev. Rul. 76-481, 1976-2 C.B. 82, clarified by Rev. Rul. 93-72, 1993-2 C.B. 77.

Life insurance policy loan. Interest paid on a loan borrowed against the taxpayer's life insurance policy to pay personal and living expenses is non-deductible personal interest. Atwood v. Commissioner, T.C. Memo. 1999-61.

Life insurance. Premiums paid for a life insurance policy by the insured are non-deductible personal expenses. Reg. Section 1.262-1(b)(1). No deduction is allowed for premiums on any life insurance policy if the taxpayer is directly or indirectly a beneficiary under the policy. Code Section 264(a)(1). Interest on money borrowed to purchase or carry a single premium life insurance, endowment, or annuity contract is not deductible. Code Section 264(a)(2).

Life insurance salesperson. A life insurance salesperson may qualify as a statutory employee who can deduct employee business expenses above the line in computing adjusted gross income, rather than as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 90-93, 1990-2 C.B. 33.

Lifetime care. A prepaid fee paid to an institution for lifetime medical care is deductible as a medical expense in the year paid, whether it is paid in monthly installments or in lump sum. Advance payments to a private institution for lifetime care, treatment, and training of a physically or mentally impaired child of the taxpayer upon the death of the taxpayer or when the taxpayer becomes unable to provide care are also deductible medical expenses. However, the payments must be a condition for the institution's future acceptance of the child and must not be refundable. Rev. Rul. 76-481, 1976-2 C.B. 82, clarified by Rev. Rul. 93-72, 1993-2 C.B. 77; Rev. Rul. 75-303, 1975-2 C.B. 83, clarified by Rev. Rul. 93-72, 1993-2 C.B. 77.

Lightning. A lightning strike can be the cause of a deductible casualty loss. IRS Publication 225, Farmers Tax Guide.

Like-kind exchange. Because a like-kind exchange of property is a non-taxable exchange, any loss from the exchange is not deductible. Code Section 1031(a)(1).

Lip reading. The cost of teaching lip reading to a hearing impaired child is deductible as a medical expense. Reg. Section 1.213-1(e)(1)(v)(a).

Living expenses. Personal, living, or family expenses are not deductible unless otherwise expressly provided by the Code. Reg. Section 1.262-1(a).

Loan origination fees. Loan origination fees, or the costs of getting a student loan, are treated as deductible student loan interest. Reg. Section 1.6050S-3(b)(1).

Lobbying expenses. Lobbying expenses and political expenditures generally are not deductible. Code Section 162(e). There is an exception for local legislation (Code Section 162(e)(2)) and a de minimis exception. Code Section 162(e)(5)(B)(i).

NOTE: This prohibition does not apply to taxpayers in the trade or business of lobbying, for expenses incurred in carrying on that trade or business. Code Section 162(e)(5)(A).

Local benefits. An assessment for local benefits that tend to increase the value of the taxpayer's property such as the construction of streets, sidewalks, or water and sewer systems, generally is not a deductible tax. Reg. Section 1.164-2(g). However, assessments for local benefits are deductible if they are for maintenance, repair, or interest charges related to those benefits such as a charge to repair an existing sidewalk and any interest included in that charge. Reg. Section 1.164-4(b)(1).

Local taxes. A taxpayer may deduct state and local income taxes, real property taxes, and personal property taxes. Code Section 164(a).

Local transportation. Local transportation expenses, which may be deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions, include the cost of getting from one workplace to another within the city or general area that is the taxpayer's tax home, the cost of getting from the taxpayer's home to a temporary work location in the area, the cost of visiting clients or customers, and the cost of attending business meetings in the area but away from the workplace. Rev. Rul. 99-7, 99-1 C.B. 361.

Lodging - Business expense. A taxpayer whose business trip is overnight or long enough that she must stop for sleep or rest to properly perform her duties may deduct the cost of a hotel room as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. United States v. Correll, 389 U.S. 299 (1967).

Lodging - Medical Expense. Up to $50 per night per person in lodging expenses may be deducted as a medical expense if the lodging is primarily for and essential to medical care; the medical care is provided by a doctor in a licensed hospital or medical care facility; the lodging is not lavish or extravagant under the circumstances; and there is no significant element of personal pleasure, recreation, or vacation in the travel away from home. Lodging expense for a person with the patient is also deductible if the person's presence is necessary because of the patients condition or immaturity. Code Section 213(d)(2).

Long-term care. Unreimbursed expenses for qualified long-term care services may be deducted as medical expenses. Code Section 213(d)(1)(C).

Long-term care insurance. A portion of qualified long-term care insurance premiums may be deductible as a medical expense, with the amount allowable as a deduction increasing with age. Code Section 213(d)(10).

Loss on deposits. A loss on deposits that occurs when a bank, credit union, or other financial institution becomes insolvent or bankrupt may be deducted as a casualty loss, ordinary loss, or non-business bad debt. If the loss is deducted as an ordinary loss, it is limited to $20,000 per financial institution, reduced by any insurance recovery, and subject to the 2 percent floor on miscellaneous itemized deductions. Deposits that were federally insured cannot be deducted as an ordinary loss. One percent owners or officers of the insolvent financial institution, and persons related to them, cannot take the loss as an ordinary loss. Code Section 165(l)(1), (5).

Losses. Losses sustained during the taxable year that are not made good by insurance or some other form of compensation generally are deductible (Code Section 165(a)), although individuals may deduct only casualty and theft losses and losses arising from a trade or business or transaction entered into for profit. Code Section 165(c). Losses from the sale of the taxpayer's home, furniture, personal car, and other personal items are not deductible, even if the taxpayer is moving for medical reasons. Harding v. Commissioner, 46 T.C. 502 (1966).

Lost property. The accidental loss or disappearance of property is deductible only if the loss qualifies as a casualty loss; that is, if it results from a sudden, unusual, or unexpected event. White v. Commissioner, 48 T.C. 430 (1967), acq., 1969-1 C.B. 21.

Lost vacation time. The value of wages never received or lost vacation time is not deductible. IRS Pub. 529, Miscellaneous Deductions.

Lost wages. The value of wages lost when a taxpayer is unable to work due to a medical condition is not deductible as a medical expense. Shepherd v. Commissioner, T.C. Memo. 1976-48.

Lottery tickets. The cost of raffle, bingo, or lottery tickets is not a deductible charitable contribution. Rev. Rul. 67-246, 1967-2 C.B. 104. Purchasers of losing raffle tickets are allowed a deduction as a gambling or wagering loss, but only to the extent of the taxpayer's gains from wagering transactions. Rev. Rul. 83-130, 1983-2 C.B. 148.

Lunches with coworkers. The cost of daily lunches in a restaurant with co-workers is not deductible, even if business is discussed at the meal. Moss v. Commissioner, 758 F.2d 211 (7th Cir. 1985).

Luxury automobiles. The amount of the depreciation deduction for luxury automobiles cannot exceed a set amount for each year in the recovery period. Code Section 280F.

Luxury water transportation. The amount of any otherwise allowable deduction for the costs of business travel by water is limited to twice the highest federal per diem amount generally available to federal employees for travel in the United States, multiplied by the number of days in transit. Code Section 274(m)(1).

M

Magazines. Subscriptions to professional journals and trade magazines related to the taxpayer's work may be deductible as unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions or deducted above the line by an individual incurred in the practice of a profession not as an employee. Pub. 17, Your Federal Income Tax - For Individuals.

Maintenance and repairs. A taxpayer can deduct the portion of maintenance and repair costs for an automobile that is attributable to the use of the automobile in his work as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer chooses to deduct actual expenses. Heuer v. Commissioner, 94 T.C. 347 (1959).

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, maintenance and repair expenses cannot be deducted separately.

Malpractice insurance premiums. Malpractice insurance premiums paid by a physician are ordinary and necessary business expenses, but a physician who is an employee may deduct the premiums only as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 60-365, 1960-2 C.B. 49.

Margin account interest. Interest on a margin account to buy securities is deductible as investment interest in the year in the year paid. The interest is considered paid when it is actually is paid to the broker or when it becomes available to the broker through the margin account. Publication 550, Investment Income and Expenses.

Marijuana. Amounts paid to obtain a controlled substance such as marijuana, in violation of federal law, are not deductible medical expenses even if state law permits the use of the substance when purchased with a physician's prescription. Rev. Rul. 97-9, 1997-1 C.B. 77.

Marriage license. Fees and licenses such as car licenses, marriage licenses, and dog tags are not deductible. IRS Pub. 529, Miscellaneous Deductions.

Marriage counseling. Marriage counseling fees are not deductible medical expenses. Rev. Rul. 75-319, 1975-2 C.B. 88.

Marriage seminar. Participants in a weekend marriage seminar conducted by a charitable organization are not entitled to a charitable contribution deduction for any part of a donation made to the organization at the conclusion of the seminar, except to the extent that the taxpayer establishes that the amount donated exceeds the value of the benefits and privileges received. Rev. Rul. 76-232, 1976-1 C.B. 62.

Mass transportation. A grant to a city transit authority for the purpose of maintaining a mass transportation system may be deductible as a charitable contribution. Rev. Rul. 71-29, 1971-1 C.B. 150.

Maternity clothes. Maternity clothing is a non-deductible personal expense. Rev. Rul. 55-261, 1955-1 C.B. 307.

Mattress. The cost of a special mattress and plywood boards for the relief of an arthritic condition was ruled to be a deductible medical expense. Rev. Rul. 55-261, 1955-2 C.B. 307.

Meals – Work related. Amounts spent for food, beverages, taxes, and related tips while away from home on business may be deductible as travel expenses. Reg. Section 1.162-2(a). A deduction also is available for the cost of meals that are directly related to or associated with the active conduct of the taxpayer's trade or business (Code Section 274(a)(1)(A)), limited to 50 percent of the otherwise deductible expense. Code Section 274(n)(1). The cost of a meal cannot be deducted as both a travel expense and an entertainment expense. Code Section 274(d)(1). The cost of meals eaten while working late is a non-deductible personal expense. Antos v.

Commissioner, T.C. Memo. 1976-89, aff'd without published opinion, 570 F.2d 350 (9th Cir. 1978).

Meals – Medical expense. The cost of meals provided by a hospital while the taxpayer is receiving inpatient care is deductible as a medical expense. Reg. Section 1.213-1(e)(1)(v).

Meals - Charitable deduction. A charitable contribution deduction will be allowed for reasonable expenditures for meals while a taxpayer is performing volunteer charitable services only if the taxpayer is away from home overnight in the course of rendering such services. Reg. Section 1.170A-1(g). In addition, no deduction is allowed for meals, travel or lodging expenses relating to the performance of services away from home for a charitable organization, unless there is no significant element of personal pleasure, recreation, or vacation in the travel. Code Section 170(j).

Medical associations. A taxpayer may claim an unreimbursed employee expense deduction subject to the 2 percent floor on miscellaneous itemized deductions for dues paid to professional organizations such as medical associations and bar associations, if membership helps the taxpayer carry out the duties of his job. Reg. Section 1.274-2(a)(2)(iii)(b).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Medical care. An individual taxpayer may deduct the amount of his medical and dental expenses that is in excess of 7.5 percent of his adjusted gross income. Code Section 213(a).

Medical conference. Deductible medical expenses include amounts paid for admission and transportation to a medical conference if the medical conference concerns the chronic illness of the taxpayer or his spouse or dependent; attendance at the conference is necessary to the receipt of medical care; and the taxpayer spends the majority of his time at the conference attending sessions on medical information. Rev. Rul. 2000-24, 2000-1 C.B. 963.

Medical exams. Amounts paid for medical examinations by physicians, surgeons, specialists, and other medical practitioners are deductible as medical expenses. Code Section 213(d)(1). In addition, the cost of a medical examination required by the taxpayer's employer may be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 58-382, 1958-2 C.B. 59.

Medical expenses. An individual taxpayer may deduct medical and dental expenses to the extent that they exceed 7.5 percent of adjusted gross income. Code Section 213(a).

Medical expenses - Braille books. The cost of Braille books and magazines purchased for a blind child are deductible as a medical expense, but only to the extent that the cost exceeds the purchase price for regularly printed editions. Rev. Rul. 75-318, 1975-2 C.B. 88.

Medical expenses - Capital improvements. The cost of a capital improvement to a home may qualify for a medical expense deduction if it is medically prescribed and used primarily for the alleviation of a physical defect or illness, but it will be deductible only to the extent that its cost exceeds the increase in the value of the home that is attributable to it. If the improvement does not increase the value of the home, its full cost is deductible. Reg. Section 1.213-1(e)(1)(iii).

Medical expenses - Diagnostic devices. The cost of diagnostic equipment such as blood sugar test kits, can be deducted as a medical expense if the device is used for the diagnosis, cure, mitigation, treatment, or prevention of disease, or the purpose of affecting any structure or function of the body. Rev. Rul. 2003-58, 2003-22 I.R.B. 959.

Medical expenses - Education expenses. While ordinary education is not medical care, the cost of attending a special school for a mentally or physically handicapped individual is a medical expense where alleviation of her handicap is a principal reason for attending the school. Reg. Section 1.213-1(e)(1)(v)(a). A school will be considered "special" when its primary function is to furnish medical care, and education is only incidental to that function. A portion of tuition payments made for attendance at a regular school that provides special programs may also qualify for the medical care deduction. A taxpayer must specifically ascertain and document the cost attributable to medical care (i.e., the portion of tuition directly attributable to the special program that qualifies as medical care). Fischer v. Commissioner, 50 T.C. 164 (1968), acq. 1969-2 C.B. 24.

Medical expense - Egg donor fees and expenses. A medical expense deduction can be taken for egg donor fees and other expenses of obtaining an egg donor so that a taxpayer may attempt pregnancy, including fees paid to coordinating agency for procuring donor, fees paid to the donor for time and expense, the expenses of medical and psychological testing of the donor, insurance fees to cover medical or psychological needs of the donor, and legal expenses for the preparation of the contract between the taxpayer and the egg donor. PLR 200318017.

Medical expenses - Elevator. The installation of an elevator, on a doctor's advice, qualifies as a medical care expense, but the medical expense deduction is limited to the cost of the elevator less the increase in value to the home attributable to the elevator. Reg. Section 1.213-1(e)(1)(iii).

Medical expenses - Equipment. The cost of equipment such as crutches, can be deducted as a medical expense if the equipment is used for the diagnosis, cure, mitigation, treatment, or prevention of disease, or the purpose of affecting any structure or function of the body. Rev. Rul. 2003-58, 2003-22 I.R.B. 959.

Medical expenses - Home for the mentally retarded. The cost of keeping a mentally retarded person in a special home, not the home of a relative, on the recommendation of a psychiatrist to help the person adjust from life in a mental hospital to community living, is a deductible medical expense. Publication 502, Medical and Dental Expenses.

Medical expenses - Laboratory fees. Laboratory fees that are part of a taxpayer's medical care are deductible medical expenses. Rev. Rul. 73-189, 1973-1 C.B. 139.

Medical expenses - Lead paint removal. The costs of removing lead-based paints from surfaces in a home to prevent a child who has or has had lead poisoning from eating the paint is a deductible medical expense. The surfaces must be in poor repair (peeling or cracking), or within the child's reach. The cost of repainting the scraped area is not a medical expense. Rev. Rul. 79-66, 1979-1 C.B. 114.

Medical expenses - Mattress. The cost of a special mattress and plywood boards for the relief of an arthritic condition was ruled by the IRS to be a deductible medical expense. Rev. Rul. 55-261, 1955-2 C.B. 307.

Medical expenses - Navajo healer. Amounts paid to Navaho medicine men for Navaho healing ceremonies called "sings" are treated as deductible medical expenses. Tso v. Commissioner, T.C. Memo. 1980-399.

Medical expenses - Non-prescription drugs. Amounts paid for medicines that can be bought without a prescription do not constitute deductible medical expenses. Code Section 213(b).

Medical expenses - Non-traditional medical care. Amounts expended for medical care may be deductible as medical expenses even if the care is not prescribed by a medical doctor. Dickie v. Commissioner, T.C. Memo 1999-138 (amounts paid for naturopathic treatments qualify for medical expense deduction); Crain v. Commissioner, T.C. Memo. 1986-138 (cost of holistic healing center eligible for medical expense deduction); Tsov. Commissioner, T.C. Memo. 1980-399 (cost of Navaho healing ceremony deductible as medical expense).

Medical expenses - Organ Transplants. Payments made by a donee for surgical, hospital, laboratory, and transportation expenses for a donor or a possible donor of a kidney or other organ are deductible medical expenses. A donor can also deduct these expenses if he pays them. Publication 502, Medical and Dental Expenses.

Medical expenses – Prescription drugs. The cost of prescription drugs and medicines is deductible as a medical expense. Code Section 213(b).

Medical expenses - Supplies. The cost of medical supplies such as bandages, can be deducted as a medical expense if the supplies are used for the diagnosis, cure, mitigation, treatment, or prevention of disease, or the purpose of affecting any structure or function of the body. Rev. Rul. 2003-58, 2003-22 I.R.B. 959.

Medical expenses – Transportation. Transportation expenses primarily for and essential to medical care constitute deductible medical expenses. Note that the medical expense deduction covers only the narrow term "transportation," rather than the broader term "travel," precluding the deduction of meals, lodging, and other living expenses under the term travel. Code Section 213(d)(1)(B). However, if a doctor prescribes an operation or other medical care and the taxpayer chooses for purely personal considerations to travel to another locality for the operation or the other medical care, neither the cost of transportation nor the cost of meals and lodging (except where paid as part of a hospital bill), is deductible. Reg. Section 1.213-1(e)(1)(iv). Transportation expenses of a parent who must go with a child who needs medical care are deductible medical expenses. Publication 502, Medical and Dental Expenses. The standard mileage rate allowed for out-of-pocket expenses for a taxpayer's use of his car for medical reasons is 12 cents a mile for 2003 and 14 cents a mile for 2004. Rev. Proc. 2002-61, 2002-39 I.R.B. 616; Rev. Proc. 2003-76, 2003-43 I.R.B. __.

Medical expenses - University health plan. A payment for a university health plan for a student is a deductible medical expense so long as it is separately stated on a bill from the university. Rev. Rul. 54-457, 1954-2 C.B. 100.

Medical information plan. Amounts paid to a plan that keeps the taxpayer's medical information so that it can be retrieved from a computer data bank for the taxpayer's medical care are deductible as medical expenses. Rev. Rul. 71-282, 1971-2 C.B. 166.

Medical insurance. Medical and hospital insurance premiums are deductible as a medical expense. Code Section 213(d)(1)(D). Prescription drug insurance is also deductible. Rev. Rul. 68-433, 1968-2 C.B. 110. Premiums paid by a taxpayer under 65 for Medicare A coverage are treated as medical insurance premiums. Rev. Rul. 79-175, 1979-1 C.B. 117. Premiums for Medicare B coverage are also deductible medical expenses. Code Section 213(d)(1)(D).

CAUTION: Premiums for disability insurance and indemnification for loss of work are not deductible medical expenses. Rev. Rul. 55-331, 1955-1 C.B. 271, modified by Rev. Rul. 68-212, 1968-1 C.B. 91.

Medical licensing fees. No deduction is allowed for professional accreditation fees such as accounting certificate fees paid for the initial right to practice accounting, bar exam fees, and medical and dental licensing fees paid to get initial licensing. Sharon v. Commissioner, 66 T.C. 515 (1976), aff'd, 591 F.2d 1273 (9th Cir. 1978), cert. denied, 442 U.S. 941 (1979).

Medical research organizations. Donations to non-profit medical research organizations are deductible as charitable contributions. Reg. Section 1.170A-9(c)(2).

Medical savings account. A taxpayer who is self-employed or who works for a small employer and is covered only by a high deductible health plan can deduct contributions to an Archer MSA (formerly called a Medical Savings Account). Code Section 220(a).

NOTE: Contributions by the taxpayer's employer are excludable from income. Code Section 106(b). Although amounts distributed from an Archer MSA and used exclusively to pay for qualified medical expenses of the account holder are not included in gross income, expenses paid with a tax-free MSA distribution are not deductible as medical expenses. Code Section 220(f)(6).

Medicare taxes. A wage earner or employee cannot deduct payments of social security and Medicare A taxes. Code Section 275(a)(1).

Medicines. The cost of prescription drugs and medicines is deductible as a medical expense. Code Section 213(b).

Membership dues. Generally, if membership in a charitable organization bestows benefits or privileges on members in return for the payment of dues, but the dues exceed the value of the benefit, the dues are deductible to the extent that they exceed the value of the benefits and privileges. Rev. Rul. 68-432, 1968-2 C.B. 104.

Mental institution. The legal expenses paid in committing the taxpayer's spouse to a mental institution are deductible as medical expenses where, in the absence of that commitment, the patient would not have been able to receive treatment. Gerstacker v. Commissioner, 414 F.2d 448 (6th Cir. 1969).

Mexican charitable organizations. Under an income tax treaty with Mexico, donations to certain Mexican charitable organizations may be deducted as charitable contributions for federal tax purposes if the donor has income from sources in Mexico. Pub. 526, Charitable Contributions.

Military equipment and uniforms. A miscellaneous itemized deduction subject to the 2 percent floor is allowed for the cost of articles of military equipment that do not replace regular clothing such as insignia of rank, corps devices, epaulets, aiguillettes (Pub. 3, Armed Forces' Tax Guide), and swords. Reg. Section 1.262-1(b)(8). The cost of military battle dress uniforms and utility uniforms such as fatigues is deductible only if the uniforms are required to be worn when on duty and cannot be worn off duty, but only to the extent the cost of the uniform exceeds any non-taxable uniform allowance received by the taxpayer. Rev. Rul. 67-115, 1967-1 C.B. 30.

Military housing allowance. Although the military housing allowance can be received tax free, the individual receiving the allowance can use it to pay deductible mortgage interest. Thus, these individuals are permitted a double tax benefit. Code Section 265(a)(6)(A).

Military reservist uniforms. The cost of military reservist uniforms may be deducted as a miscellaneous itemized deduction subject to the 2 percent floor if the uniforms can be worn only when on active duty for training or temporary schools, when attending service school courses or when attending training assemblies, but only to the extent the cost exceeds any non-taxable uniform allowances received by the reservist. Reg. Section 1.262-1(b)(8).

Mine cave-ins. Damage caused by a mine cave-in may give rise to a deductible casualty loss. Rev. Rul. 57-524, 1957-2 C.B. 141.

Minister housing allowance. Although a minister's housing allowance can be received tax free, the individual receiving the allowance can use it to pay deductible mortgage interest and thus is permitted a double tax benefit. Code Section 265(a)(6)(A).

Mislaid property. The simple disappearance of money or property does not give rise to a theft deduction. IRS Publication 547, Casualties, Thefts, and Disasters.

Missing securities. A taxpayer who must post an indemnity bond to replace taxable securities that are mislaid, lost, stolen, or destroyed can deduct the premium paid to buy the bond and the related incidental expenses as investment expenses. Rev. Rul. 62-21, 1962-1 C.B. 37.

Missionaries. Funds transferred by taxpayers to their children while the children served as full-time, unpaid missionaries for the Church of Jesus Christ of Latter-Day Saints are not deductible as charitable contributions to the church. Davis v. United States, 495 U.S. 472 (1990).

Mobile home. Interest paid on a loan secured by the taxpayer's home, including a second home, is deductible. Code Section 163(h)(3). A mobile home that has sleeping, cooking, and toilet facilities is treated as a home for purposes of the home mortgage interest deduction. Reg. Section 1.163-10T(p)(3)(ii).

Mortgage assistance. If a taxpayer qualifies for mortgage assistance payments under the National Housing Act so that part or all of the interest on the taxpayer's home mortgage is paid on the taxpayer's behalf, the interest thus paid is not eligible for the home mortgage interest deduction. IRS Pub. 936, Home Mortgage Interest Deduction.

Mortgage insurance. Mortgage insurance premiums for the taxpayer's personal residence are non-deductible personal expenses. Summers v. Commissioner, T.C. Memo. 1981-545.

Mortgage interest. Interest paid on a loan secured by the taxpayer's home, including a second home, is deductible. Code Section 163(h)(3).

Mortgage prepayment penalty. A penalty for paying off the mortgage early is deductible as home mortgage interest, provided the penalty is not for a specific service performed in connection with the mortgage loan. Rev. Rul. 57-198, 1957-1 C.B. 94. A mortgage penalty is not deductible as a moving expense. IRS Pub. 521, Moving Expenses.

Mosques. Donations to a mosque or another religious organization are deductible as charitable contributions. Code Section 170(b)(1)(A)(i).

Moth damage. Termite or moth damage generally constitutes a non-deductible loss due to progressive deterioration, rather than a deductible casualty loss. Rev. Rul. 55-327, 1955-1 C.B. 25.

Moving expenses - Move within the U.S. Moving expenses paid or incurred in connection with a change in job location or the start of work in a new location, either as an employee or as a self-employed individual, are deductible if certain time and distance tests are satisfied. Code Section 217(a). Members of the Armed Forces who move because of a permanent change of station do not have to meet the time and distance tests in order to deduct their moving expenses. Code Section 217(g). For domestic moves, the deduction is limited to the reasonable costs of moving household goods and personal effects to the new residence and traveling to the new residence. Code Section 217(b)(1).

Moving expenses - Move to or from location outside of the U.S. For a move connected to the start of work at a location outside the United States or its possessions, the household goods and personal effects category of moving expenses is broadened to include the cost of moving household goods and personal effects to and from storage and of storing household goods and personal effects while the taxpayer continues working at the new place of employment. Code Section 217(h)(1). Moving expenses also are deductible if the taxpayer moves to the United Statesupon permanently retiring from a principal place of work outside the United States and its possessions. Code Section 217(i)(2). A taxpayer who was the spouse or dependent of a person whose principal place of work at the time of his death was outside the United States and its possessions may deduct the expenses of moving to a home in the United States if the move begins within six months of the decedent's death and the move is from the decedent's former home in which the taxpayer lived with the decedent at the time of his death. Code Section 217(i)(3).

Moving expenses - Unpaid. If a taxpayer's household goods are sold by a moving company because the taxpayer refused to pay the moving and storage costs, the taxpayer cannot claim a casualty or theft loss deduction for the value of the household goods. Carlisle v. Commissioner, T.C. Memo. 1976-314.

Moving losses. When a taxpayer's employer transferred him to its office in Iran, and his personal and household belongings were shipped to Iran but lost in transit at the time of the 1979 hostage crisis, and civil unrest and violent anti-Americanism prevented the taxpayer from retrieving his property or learning the precise way in which his goods were lost or destroyed, the taxpayer is entitled to a deductible casualty loss. Clem v. Commissioner, T.C. Memo. 1991-414.

MSA. Although amounts distributed from an Archer MSA and used exclusively to pay for qualified medical expenses of the account holder are not included in gross income, expenses paid with a tax-free MSA distribution are not deductible as medical expenses. Code Section 220(f)(6).

NOTE: A taxpayer who is self-employed or who works for a small employer and has a high deductible health plan can deduct contributions to an Archer MSA (formerly called a Medical Savings Account), above the line in arriving at adjusted gross income. Code Section 220(a). Contributions by the taxpayer's employer are excludable from income. Code Section 106(b).

Musical instruments. The cost of a clarinet and clarinet lessons to correct teeth defects is deductible as medical expenses. Rev. Rul. 62-210, 1962-2 C.B. 89.

Musical manuscripts – Donated by composer. A composer who donates a musical manuscript she created to a qualified charity is allowed only a deduction for the cost to make the manuscript, excluding the value of her work. Code Section 1.170A-4(b).

Musical Manuscripts – Donated by taxpayer other than composer. A taxpayer other than the composer who donates a musical manuscript can take a deduction for its fair market value, if the donee organization uses the manuscript in a way which is related to the purpose or function constituting the basis for its exemption. Reg. Section 1.170A-1(c)(1); Code Section 170(e)(1).

CAUTION: If the organization does not use the manuscript in a way which is related to the purpose or function constituting the basis for its exemption, the donor may only deduct the fair market value of the manuscript less any capital gain that would have been realized if the artwork had been sold at the time it was donated to the organization. Code 170(e)(1).

N

Natural childbirth classes. Expenses paid for natural childbirth classes are non-deductible personal expenses rather than medical expenses. Peacock v. Commissioner, T.C. Memo. 1978-30.

Naturopathic doctor. Because amounts expended for medical care may be deductible as medical expenses even if the care is not prescribed by a medical doctor, the cost of naturopathic treatments for disease is deductible. Dickie v. Commissioner, T.C. Memo 1999-138.

Navajo healer. Amounts paid to Navaho medicine men for Navaho healing ceremonies called "sings" are treated as deductible medical expenses. Tso v. Commissioner, T.C. Memo. 1980-399.

Net operating loss. An individual taxpayer may carry forward or backward a net operating loss (NOL), calculated when deductions for the year exceed income for the year. Code Section 172(c).

Nightclub. The cost of entertaining guests at a nightclub generally will not be considered to be directly related to the taxpayer's trade or business, due to the substantial distractions of the venue, although the taxpayer may establish by clear evidence that the entertainment is directly related to the taxpayer's trade or business. Reg. Section 1.274-2(c)(7)(ii)(a). The entertainment also may be deductible if it is associated with the active conduct of the taxpayer's trade or business and directly precedes or follows a substantial and bona fide business discussion. Code Section 274(a)(1)(A).

Non-prescription drugs. Amounts paid for medicines that can be bought without a prescription do not constitute deductible medical expenses. Code Section 213(b).

Non-traditional medical care. Amounts expended for medical care may be deductible as medical expenses even if the care is not prescribed by a medical doctor. Dickie v. Commissioner, T.C. Memo 1999-138 (amounts paid for naturopathic treatments qualify for medical expense deduction); Crain v. Commissioner, T.C. Memo. 1986-138 (cost of holistic healing center eligible for medical expense deduction); Tso v. Commissioner, T.C. Memo. 1980-399 (cost of Navaho healing ceremony deductible as medical expense).

Not-for-profit activities. The expenses of a hobby or not-for-profit activity are deductible only up to the amount of income from the hobby. Code Section 183(b).

Nursing care for a healthy baby. The cost of a nurse to care for a healthy child whose mother died in childbirth is a non-deductible personal expense rather than a deductible medical expense. Wendell v. Commissioner, 12 T.C. 161 (1949).

Nursing home. Where an individual is in an institution for medical reasons, and meals and lodging are furnished as a necessary incident to the continual medical care provided, the entire cost of medical care and meals and lodging at the institution is a deductible medical expense. Reg. Section 1.231-1(e)(1)(v)(a). However, if an individual is in an institution for personal or family reasons, not principally because of the availability of medical care in the institution, only that part of the cost of care in the institution that is attributable to medical care is a deductible medical expense. Reg. Section 1.213-1(e)(1)(v)(b).

Nursing services. Wages paid to a nurse for the care of a person who has an illness are deductible as a medical expense; however, any portion of wages allocable to household duties or other non-medical tasks is not deductible. Rev. Rul. 76-106, 1976-1 C.B. 71. The travel expenses of a nurse were held to be deductible medical expenses in a situation where the taxpayer, who was traveling to get medical treatment, was too sick to travel alone. Rev. Rul. 58-110, 1958-1 C.B. 155.

NOTE: Social Security and Medicare taxes, FUTA, and state unemployment taxes paid for a worker providing medical care or nursing services also are deductible. Rev. Rul. 57-489, 1957-2 C.B. 207.

Nutritional supplements. Nutritional or herbal supplements, vitamins, and natural medicines are not deductible as medical expenses unless they can be obtained legally only with a doctor's prescription. Flemming v. Commissioner, T.C. Memo 1980-583.

O

Obsolescence. A loss that arises from the sudden termination of the usefulness of non-depreciable property used in a business or a for-profit transaction is deductible if the business or transaction is discontinued or the property is permanently discarded from use. Reg. Section 1.165-2(a).

Occupational taxes. A flat rate tax charged by a locality for the privilege of working or doing business in that locality that is paid by a taxpayer may be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.67-1T(a)(1).

Office expenses. Office expenses such as rent and clerical help, paid in connection with the taxpayer's investments and collecting the taxable income on them are deductible investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.212-1(g).

Official paid on fee-basis. A state or local government official who is paid on a fee-basis may claim his expenses in performing services in that capacity as an adjustment to income rather than as unreimbursed employee expenses. Publication 529, Miscellaneous Deductions.

Operations. Amounts paid for legal operations affecting a structure or function of the body, other than unnecessary cosmetic surgery, are deductible as medical expenses. Reg. Section 1.213-1(e)(1)(ii).

Option. If a taxpayer grants an option to buy real property at a bargain price to a charitable organization, the taxpayer cannot take a charitable contribution deduction until the organization exercises the option. The amount of the deduction is the excess of the property's fair market value on the date of exercise over the option's exercise price. Rev. Rul. 82-197, 1982-2 C.B. 72.

Organ donor expenses. Expenses incurred by a person donating an organ for transplant are deductible as a medical expense, either by the recipient of the transplant (Rev. Rul. 68-452, 1968-2 C.B. 111) or by the donor or prospective donor. Rev. Rul. 73-189, 1973-1 C.B. 139.

Organ transplant. The expenses of an organ transplant or other surgery are deductible as medical expenses. Reg. Section 1.213-1(e)(1)(ii).

Organic food. Taxpayers who are allergic to the chemical compounds found in herbicides and pesticides may claim a medical expense deduction for the cost of organic food, but only to the extent it exceeds the cost of similar chemically treated food. Randolph v. Commissioner, 67 T.C. 481 (1976).

Original issue discount. The issuer of an obligation with original issue discount generally may claim an interest deduction for the amount of such discount, with the deduction prorated or amortized over the life of the obligation. Code Section 163(e).

Orthopedic shoes. The cost of orthopedic shoes, in excess of the cost of regular shoes, is deductible as a medical expense. PLR 8221118.

Osteopath. Amounts paid to an osteopath for medical care are deductible as medical expenses. Code Section 213(d)(4).

Out-of-pocket expenses. A taxpayer may deduct, as a charitable contribution, the out-of-pocket expenses incurred in providing volunteer services to a qualified organization. Smith v. Commissioner, 60 T.C. 988 (1973).

Overalls. The cost of overalls that the taxpayer used exclusively for his work as an engineer, always left at work, and washed in washing machines that were at the job site, was held to be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Hastings v. Commissioner, T.C. Memo. 1982-583.

Overthrow of foreign government. The loss of personal property left in a foreign country during the violent overthrow of the country's government (such as the fall of South Vietnam to the North Vietnamese or the Iranian revolution), is a deductible personal casualty loss, even if it is not clear what ultimately happened to the property. Popa v. Commissioner, 73 T.C. 130 (1979), acq., 1981-2 C.B. 2; Clem v. Commissioner, T.C. Memo. 1991-414.

Oxygen. The cost of oxygen and oxygen equipment used to alleviate difficulty in breathing due to a medical condition is a deductible medical expense. Rev. Rul. 55-261, 1955-1 C.B. 307.

P

Packing, crating, and transporting household goods. Deductible moving expenses include the expenses of packing, crating, transporting, and insuring the taxpayer's household goods and effects, and the costs of in-transit storage. Reg. Section 1.217-2(b)(3).

Parking fees – Work related. Fees paid to park the taxpayer's car at her place of business are non-deductible commuting expenses. Henderson v. Commissioner, T.C. Memo. 1983-372. Parking fees attributable to business use of an automobile such as visiting a customer or client, may be deducted by employees as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Proc. 2002-61, 2002-39 I.R.B. 616, Section 5.04. The cost of parking fees at a sports arena may be deducted, subject to the 50 percent limitation, as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions, if the entertainment is associated with or directly related to the taxpayer's work. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Parking fees – Medical related. Parking fees are deductible as medical expenses when the car is used for medical reasons. Rev. Proc. 2002-61, 2002-39 I.R.B. 616, Section 7.04.

Parks. Donations to public parks and recreation facilities are deductible as charitable contributions. Rev. Rul. 59-310, 1959-2 C.B. 146.

Parsonage allowance. Although a parsonage allowance can be received tax free, the individual receiving the allowance can use it to pay deductible mortgage interest. Thus, these individuals are permitted a double tax benefit. Code Section 265(a)(6)(B).

Partial interest in property. A contribution of a partial interest in property to a charity is deductible as a charitable contribution only if that interest represents one of the following: (1) a remainder interest in the donor's personal home or farm; (2) an undivided part of the donor's entire interest; (3) a partial interest that would be deductible if transferred in trust; or (4) a qualified conservation contribution. Code Section 170(f)(3)(B).

Partial interest in property - Transfer in trust. If the taxpayer makes a gift to a charitable organization of a remainder interest of property held in trust, a charitable contribution deduction is allowed only if the trust is a charitable remainder annuity trust, a charitable remainder unitrust, or a pooled income fund. Code Section 170(f)(2)(A). If the taxpayer makes a gift of any other interest in property transferred in trust, a charitable contribution deduction is allowed only if the interest is in the form of a guaranteed annuity or if the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly), and the grantor is treated as the owner of such interest. Code Section 170(f)(2)(B).

Partnership expenses. Generally, a partnership does not pay tax on its income but passes through any profits or losses to its partners, who must include partnership items on their tax returns and thus may claim deductions attributable to the partnership. Code Sections 701, 703.

Party expenses. A person who hosts a party at which sales are made such as a Tupperware party, can deduct out-of-pocket party expenses, subject to the 50 percent limit for meal and entertainment expenses, as miscellaneous itemized deductions subject to the 2 percent limit, but only up to the amount of income received for giving the party. IRS Pub. 911, Direct Sellers.

NOTE: A "gift" received from the direct seller in exchange for giving the party constitutes taxable income. IRS Pub. 911, Direct Sellers.

Passive activity losses. Losses from a passive activity (one in which the taxpayer does not materially participate), generally are deductible only to the extent of passive activity income, although excess losses can be carried forward. Code Section 469(a)(1)(A).

NOTE: Although rental real estate activities are considered passive activities even if the taxpayer actively participates, an exception to the rule allows an individual to deduct up to $25,000 annually of losses attributable to rental real estate activities. Code Section 469(i).

Passport. The cost of a passport procured in connection with a business trip may be deductible as an employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 72-608, 1972-2 C.B. 100. The cost of getting a passport also may be deductible as a moving expense if the passport is procured for a move in connection with the start of work at a new job location outside the United States and its possessions. IRS Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Patents. The contribution of an undivided present interest in a patent qualifies as a deductible charitable contribution. The amount of the contribution is the fair market value of the interest. Rev. Rul. 58-260, 1958-1 C.B. 126. The contribution of a patent subject to a license or transfer restriction is also a deductible charitable contribution, but the restriction must be taken into account in determining the amount of the contribution.

CAUTION: A contribution of a license to use a patent is not deductible if the taxpayer retains any substantial right in the patent because it is a contribution of a partial interest. For the same reason, a contribution of a patent subject to a conditional reversion is also not deductible, unless the likelihood of the reversion is so remote as to be negligible. Rev. Rul. 2003-28, 2003-11 I.R.B. 594.

Patterning exercises. Deductible medical expenses include amounts paid to an individual for giving "patterning" exercises to a mentally retarded child. These exercises consist mainly of coordinated physical manipulation of the child's arms and legs to imitate crawling and other normal movements. Rev. Rul. 70-170, 1970-1 C.B. 51.

Payments in lieu of taxes (PILOT). Tax equivalency payments measured by and equal to the amounts imposed by the regular real estate tax statutes, and designated for a public purpose rather than a local benefit tending to increase the value of the property upon which the payments are made, are deductible as real estate taxes. Rev. Rul. 71-49, 1971-1 C.B. 103.

Penalties on early withdrawal. Forfeitures of interest or penalties paid on the early withdrawal of a time savings account are deductible as a loss in arriving at adjusted gross income. Rev. Rul. 73-511, 1973-2 C.B. 402, modified by Rev. Rul. 75-21, 1975-1 C.B. 367.

Pens. Items such as pens and desk sets that cost less than $4, have the taxpayer's name imprinted on them, and are among a number of identical items widely distributed by the taxpayer, are not considered gifts for purposes of applying the $25 limit on deductible business gifts. Therefore, the cost of these items can be deducted as a trade or business expense or an expense for the production or collection of income. Code Section 274(b)(1)(A).

Pension plan. Administrative fees paid to the trustee of a pension plan in which the taxpayer is a participant are deductible investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. TAM 9001002.

Pentathlon training. A military officer who received a temporary assignment to a pentathlon training facility as part of the Army's World Class Athlete Program cannot claim an unreimbursed employee expense deduction for unreimbursed travel expenses relating to the training because the expenditures are personal in nature. PLR 9050003.

Performing artists. A performing artist may be able to deduct employee business expenses as an adjustment to gross income rather than as miscellaneous itemized deductions subject to the 2 percent floor. Code Section 62(a)(2)(B).

Personal disability insurance premiums. Premiums paid on an insurance policy to replace income lost by reason of disability are personal expenses that are not deductible either as business expenses or as medical expenses. Rev. Rul. 55-331, 1955-1 C.B. 271.

Personal expenses. Personal, living, or family expenses are not deductible. Code Section 262(a).

Personal expenses - Interest. Personal interest is not deductible. Code Section 163(h).

Personal expenses - Legal expenses. No deduction is allowed for personal legal expenses such as those involving the custody of children, breach of promise to marry, civil or criminal charges resulting from a personal relationship, damages for personal injury, preparation, defense, or perfection of a title, preparation of a will, or property claims in a divorce. United States v. Gilmore, 372 U.S. 39 (1963).

Personal property. A gift of personal property to a qualified organization allows the donor to claim a charitable contribution deduction for the fair market value of the personal property on the date of the donation. Crocker v. Commissioner, T.C. Memo. 1998-204.

Personal property taxes. A taxpayer may deduct state and local personal property taxes, which are defined as ad valorem taxes imposed annually with respect to personal property. Code Section 164(a)(2).

Pets. The cost of moving household pets from the taxpayer's former home to a new home in connection with the start of work at a new location is a deductible moving expense. Rev. Rul. 66-305, 1966-2 C.B. 102. Damage caused by a family pet does not give rise to a deductible casualty loss. Diggs v. Commissioner, T.C. Memo. 1959-99, aff'don other grounds, 281 F.2d 326 (2d Cir. 1960), cert. denied, 364 U.S. 908 (1960).

Pew rents. Church pew rents are deductible as charitable contributions. Rev. Rul. 70-47, 1970-1 C.B. 49.

Physical examination. The cost of a physical examination is deductible as a medical expense. Atkinson v. Commissioner, 44 T.C. 39 (1965), acq. 1965-2 C.B. 4.

Plane fares – Business related. The costs of air, rail, and bus transportation incurred in a taxpayer's work may be deductible unreimbursed employee travel expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-2(a).

Plane fares – Medical related. Transportation primarily for, and essential to, medical care may be deductible as a medical expense. Code Section 213(d)(1)(B).

Plea bargain agreement. A taxpayer who contributed money and property to a qualified organization as part of a plea bargain to allow him to escape incarceration had a clear expectation that he would benefit from making the gift and thus cannot claim a charitable contribution deduction. Lombardo v. Commissioner, T.C. Memo. 1985-552.

Plumbing fixtures. Plumbing fixtures installed on the first floor of a house for an arthritic heart patient are deductible as a medical expense. Rev. Rul. 70-395, 1970-2 C.B. 65.

Points – Home financing. Points paid by a borrower to obtain a home mortgage are deductible in the year paid if payment of points is an established business practice in the area in which such indebtedness is incurred, and the amount of such payment does not exceed the amount generally charged in such area. Code Section 461(g)(2).

CAUTION: Points paid to refinance a mortgage on the taxpayer's principal residence generally are deductible only over the life of the loan. Rev. Rul. 87-22, 1987-1 C.B. 146.

Political contributions. Amounts spent to influence legislation or to participate or intervene in a political campaign generally are non-deductible personal expenses. Code Section 162(e).

Political convention. An elected legislator's expenses of attending a political party's biennial convention, held to plan strategy and advance the party's political programs, as a participant of a law enforcement panel to discuss various aspects of law enforcement in relation to the party's political programs, are not deductible as ordinary and necessary business expenses. Rev. Rul. 76-64, 1976-1 C.B. 45. No deduction is allowed for any amount paid or incurred for advertising in a convention program of a political party; similarly, no deduction is allowed for the costs of advertising in any other publication if any part of the proceeds of the publication directly or indirectly inures to or for the use of a political party or a political candidate. Code Section 276(a)(1).

Political parties. A taxpayer other than a bank cannot claim a bad debt deduction or a deduction for worthless securities by reason of the worthlessness of any debt owed to the taxpayer by a political party. Code Section 271(a).

Ponzi scheme. Taxpayers are entitled to a theft loss for an investment that turned out to be a Ponzi scheme, a swindle in which victims are persuaded to invest in a high-return investment, and early returns are paid with money from later investments until the stream of new investors runs out and the scheme collapses. Jensen v. Commissioner, T.C. Memo. 1993-393.

Prepaid interest – Home financing. Prepaid interest (known as points), paid by a borrower to obtain a home mortgage is deductible in the year paid if payment of prepaid interest is an established business practice in the area in which such indebtedness is incurred, and the amount of such payment does not exceed the amount generally charged in such area. Code Section 461(g)(2).

CAUTION: Prepaid interest paid to refinance a mortgage on the taxpayer's principal residence generally are deductible only over the life of the loan. Rev. Rul. 87-22, 1987-1 C.B. 146.

Prepaid medical insurance premiums. Insurance premiums paid by a taxpayer under the age of 65 for insurance covering expenses of medical care for the taxpayer after the age of 65 are deductible in the year paid if the premiums for the insurance are payable under the contract for a period of 10 years or more, or until the year the taxpayer attains age 65 (but in no case for a period less than five years). Reg. Section 1.213-1(e)(4)(b).

Prepaid tuition. Contributions to a qualified tuition program (QTP), established or maintained by a state or an educational institution to allow individuals to either prepay a student's tuition or contribute to an account established for paying a student's qualified higher education expenses are not deductible for federal income tax purposes. Code Section 529(c).

Prepayment penalties. Penalty payments made by a taxpayer to his mortgagee for the privilege of prepaying his mortgage indebtedness are deductible as home mortgage interest, provided the penalty is not for a specific service performed or a cost incurred in connection with the loan. Rev. Rul. 57-198, 1957-1 C.B. 94.

Pre-rental expenses. A taxpayer who holds property for rental purposes can deduct the ordinary and necessary expenses of managing, conserving, or maintaining the property from the time it is made available for rent, not just from the time it actually is leased. Moylan v. Commissioner, T.C. Memo. 1968-15.

Prescription medicines. The cost of prescription drugs and medicines is deductible as a medical expense. Code Section 213(b).

Principal on mortgage. The deduction for home mortgage interest payments does not cover amounts applied to reduce the principal on the home mortgage, including prepayments of principal. Foster v. Commissioner, T.C. Memo. 1989-276.

Production of income. An individual may deduct, as miscellaneous itemized deductions subject to the 2 percent floor, all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income. Code Section 212.

Professional accreditation fees. No deduction is allowed for professional accreditation fees such as accounting certificate fees paid for the initial right to practice accounting, bar exam fees, and medical and dental licensing fees paid to get initial licensing. Sharon v. Commissioner, 591 F.2d 1273 (9th Cir. 1978), cert. denied, 442 U.S. 941 (1979).

Professional journals. The costs of subscriptions to professional journals and trade magazines related to the taxpayer's work may be deducted as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.67-1T(a)(1)(i).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Professional organizations. A taxpayer may claim deductions, as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions for dues paid to professional organizations, chambers of commerce, and similar organizations if membership helps the taxpayer carry out the duties of his job. Reg. Section 1.162-15(c).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Professional reputation. Expenses to improve the taxpayer's professional reputation such as the costs incurred for radio and TV appearances intended to increase the taxpayer's personal prestige or to establish the taxpayer's professional reputation, constitute non-deductible personal expenses. Rev. Rul. 55-291, 1955-1 C.B. 317.

Progressive deterioration. Loss of property due to progressive deterioration, or resulting from a steadily operating cause or a normal process rather than from a sudden event, is not deductible as a casualty loss. Maher v. Commissioner, 76 T.C. 593 (1981).

Promissory note. If a taxpayer issues and delivers a promissory note to a charitable organization as a contribution, it is not a deductible contribution until the taxpayer makes the note payments. Rev. Rul. 68-174, 1968-1 C.B. 81.

Promotional materials. Signs, display racks, other promotional materials to be used on the recipient's business premises, and certain inexpensive items such as pens with the taxpayer's name imprinted on them, do not count as gifts in applying the $25 limitation on deductible business gifts. Therefore, the cost of the items can be deducted as a trade or business expense or as an expense for the production or collection of income. Code Section 274(b)(1)(B).

Property settlements. There is no recognized gain or loss on the transfer of property between spouses, or between former spouses if the transfer is because of a divorce. Code Section 1041(a).

Property that has decreased in value. If a taxpayer contributes to a charitable organization property with a fair market value that is less than the taxpayer's basis in it, the amount of the charitable contribution deduction is limited to its fair market value. No deduction is available for the difference between the property's basis and its fair market value. Rev. Rul. 79-419, 1979-2 C.B. 107.

Property that has increased in value. If a taxpayer makes a charitable contribution of property that has a fair market value in excess of the taxpayer's basis in it, the amount of the charitable contribution deduction generally is reduced by the amount of gain that would have been recognized if the property had been sold at its fair market value at the time of the contribution. Whether the reduction applies depends on whether the contribution is of ordinary income property, capital gain property, or qualified appreciated stock. Code Section 170(e)(1).

Prosthetic devices. The cost of artificial teeth or limbs is deductible as a medical expense. Reg. Section 1.213-1(e)(1)(ii).

Protective clothing. The cost of protective clothing required in the taxpayer's work such as safety shoes or boots, safety glasses, hard hats, and work gloves, is deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 55-235, 1955-1 C.B. 274.

Proxy fights. A stockholder can deduct proxy fight expenditures as miscellaneous itemized deductions subject to the 2 percent floor if such expenditures are proximately related to either the production or collection of income or to the management, conservation, or maintenance of property held for the production of income. Rev. Rul. 64-236, 1964-2 C.B. 64.

Psychiatric care. Amounts paid for psychiatric care, including the cost of care at a specially equipped medical center for the primary purpose of alleviating a mental illness, is deductible as a medical expense; however, the cost of instruction or tuition at the center does not represent a medical expense and is not deductible. Rev. Rul. 55-261, 1955-1 C.B. 307.

Psychoanalysis. The cost of psychoanalytic treatment undertaken primarily to alleviate a mental illness or defect is deductible as a medical expense. Starrett v. Commissioner, 41 T.C. 877 (1964). However, the cost of psychoanalysis required as part of training to be a psychoanalyst is not deductible. Namrow v. Commissioner, 33 T.C. 419 (1959).

Psychologist. Amounts paid to a psychologist for psychotherapy intended to prevent or alleviate a physical or mental defect or illness are deductible as medical expenses, but if the psychotherapy is incidental to general supervisory counseling, the cost constitutes a non-deductible personal expense. Rev. Rul. 55-261, 1955-1 C.B. 307.

Public benefit corporation. Amounts paid directly to a public benefit corporation rather than to a government's general revenue fund may constitute deductible taxes if the corporation has been created for a public purpose, is regarded as performing a governmental function for which public money may be appropriated, and the payments are required in order to obtain revenue the government would otherwise lose because of the treatment of the public benefit corporation as tax exempt. Rev. Rul. 71-49, 1971-1 C.B. 103.

Public official. A public official's expenses for salaries, office space, and office supplies are not deductible as charitable contributions because they benefit her trade or business of being a public official; however, they can be deducted as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the official itemizes expenses. Rev. Rul. 84-110, 1984-2 C.B. 35.

Public parks. Donations to public parks and recreation facilities are deductible as charitable contributions. Rev. Rul. 59-310, 1959-2 C.B. 146.

Publicity. Negative publicity such as press and media attention extending for months in the taxpayer's neighborhood following two sensational murders, bears little similarity to a fire, storm, or shipwreck and is not properly classified as a casualty that would give rise to a deductible loss. Chamales v. Commissioner, T.C. Memo. 2000-33.

Q

Qualified conservation contribution. A contribution of a qualified real property interest to a charitable organization exclusively for conservation purposes is deductible as a charitable contribution. Code Section 170(h).

Qualified tuition programs. Contributions to a qualified tuition program (QTP) established or maintained by a state or an educational institution to allow individuals to either prepay a student's tuition or contribute to an account established for paying a student's qualified higher education expenses are not deductible for federal income tax purposes. Code Section 529(c).

R

Racism. An individual who sells his home at a loss following harassment and vandalism by allegedly racist neighbors cannot deduct the loss as a casualty or theft loss. Torre v. Commissioner, T.C. Memo. 2001-218, aff'd, No. 02-70133 (9th Cir. 12/19/02).

Radial keratotomy. The cost of radial keratotomy surgery to correct near- or far-sightedness and avoid the need for eyeglasses is deductible as a medical expense. Rev. Rul. 2003-57, 2003-22 I.R.B. 959.

Raffle tickets. The cost of raffle, bingo, or lottery tickets is not deductible as a charitable contribution. Rev. Rul. 67-246, 1967-2 C.B. 104. Purchasers of losing raffle tickets are allowed a deduction as a gambling or wagering loss, but only to the extent of the taxpayer's gains from wagering transactions. Rev. Rul. 83-130, 1983-2 C.B. 148.

Railings. Installing support bars or railings in the bathrooms or other areas of the taxpayer's home in order to accommodate a disability of the taxpayer or his spouse or dependents is a deductible medical expense. Rev. Rul. 87-106, 1987-2 C.B. 67.

Rainfall. Rainfall does not normally give rise to a deductible casualty loss because rain, even if heavy, is generally not an unusual or unexpected event. Portman v. United States, 683 F.2d 1280 (9th Cir. 1982). However, abnormally heavy rainfall can be the cause of a deductible personal casualty loss. Radding v. Commissioner, T.C. Memo. 1988-250.

Ramps. The cost of constructing entrance or exit ramps for the taxpayer's home in order to accommodate a disability of the taxpayer or her spouse or dependents is a deductible medical expense. Rev. Rul. 87-106, 1987-2 C.B. 67.

Ransom. Ransom paid to a kidnapper is a deductible theft loss. Rev. Rul. 72-112, 1972-1 C.B. 60.

Razing. Damage to a building caused by the razing of another building qualifies as a deductible casualty loss. Krahn v. Commissioner, T.C. Memo. 1980-42.

Reader for the blind. Payments made by blind employees to readers for services performed in connection with the work of the blind employee may be deductible as impairment-related work expenses that are not subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 75-316, 1975-2 C.B. 54.

Real estate board. A taxpayer may be able to claim an unreimbursedemployee expense deduction subject to the 2 percent floor on miscellaneous itemized deductions for dues paid to professional organizations, chambers of commerce, and similar organizations if membership helps the taxpayer carry out the duties of his job. Reg. Section 1.162-15(c).

Real estate investment trust. Although net operating losses generally can be carried forward or backward, a net operating loss sustained by a qualified real estate investment trust (REIT), cannot be carried back and deducted in an earlier year. Reg. Section 1.172-10(a)(1).

Real estate taxes. State, local, and foreign real estate taxes are deductible by the person on whom they are imposed. Code Section 164(a)(1).

NOTE: When real property is sold, property taxes for the year of sale are apportioned between the seller and the purchaser using a formula based on the number of days during the year each owned the property. Code Section 164(d)(1).

Real estate taxes - Local benefits. An assessment for local benefits that increases the value of the taxpayer's property such as the construction of streets, sidewalks, or water and sewer systems, generally is not a deductible tax. Reg. Section 1.164-2(g). However, assessments for local benefits are deductible if they are for maintenance, repair, or interest charges related to those benefits such as a charge to repair an existing sidewalk and any interest included in that charge. Reg. Section 1.164-4(b)(1).

Recliner. The cost of a reclining chair purchased on a doctor's advice to alleviate the taxpayer's heart condition, and not used generally as an article of furniture, is deductible as a medical expense. Rev. Rul. 58-155, 1958-1 C.B. 156.

Recordation tax. A county tax imposed on the privilege of recording a deed is not deductible as a real property tax; rather, it must be added to the taxpayer's basis in the property acquired. Gibbons v. Commissioner, T.C. Memo. 1976-125.

Recreation facilities. Donations of money or property to public parks and recreation facilities are deductible as charitable contributions. Rev. Rul. 59-310, 1959-2 C.B. 146.

Red Cross. Donations to the Red Cross and other nonprofit charitable organizations are deductible as charitable contributions. Reg. Section 1.170A-9(e)(1)(ii).

Redeemable ground rent. Annual or periodic redeemable ground rent payments are deductible as mortgage interest. Code Section 163(c).

Refinancing. Points paid to refinance a mortgage on the taxpayer's principal residence are deductible only over the life of the loan, not in the year paid. Rev. Rul. 87-22, 1987-1 C.B. 146. However, where an initial short-term loan is merely an integrated step in securing permanent financing, points paid upon refinancing to extinguish the short-term loan and obtain a standard 30-year mortgage are deductible in the year paid. Huntsman v. Commissioner, 905 F.2d 1182 (8th Cir. 1990).

Rehabilitation treatment. The cost of treatment, including meals and lodging, at a drug or alcoholism rehabilitation center or clinic is deductible as a medical expense. Rev. Rul. 72-226, 1972-1 C.B. 96, Rev. Rul. 73-325, 1973-2 C.B. 75.

Registration – Automobile. State and local taxes on the registration or licensing of highway motor vehicles are deductible as personal property taxes only if the tax is ad valorem, or substantially in proportion to the value of the motor vehicle, and is imposed on an annual basis. Reg. Section 1.164-3(c)(3). Vehicle license and registration fees may be deducted as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions if they are incurred in the course of the taxpayer's work. Rul 74-454, 1974-2 C.B. 57.

Registration fees for medical conference. Registration fees for a conference are deductible as a medical expense where attendance at the conference of a parent of a child with a chronic disease was at the recommendation of the physician of the child, the purpose of the conference was to provide medical information useful in making decisions concerning the child's treatment or in providing care for the child, and any social and recreational activities outside of the conference were secondary to attendance at the conference. Rev. Rul. 2000-24, 2000-1 C.B. 963.

Related parties – Sales between. No deduction is allowed for losses arising from the sale or exchange of property, directly or indirectly, between related parties. Code Section 267(a).

Relief fund contributions. Employee contributions to a private, voluntary plan that pays disability benefits to any covered employee who cannot work, due to an injury or illness not related to the job, are non-deductible personal expenses. Rev. Rul. 81-194, 1981-2 C.B. 54.

Religious organization. Contributions to a church, synagogue, temple, mosque, or other religious organization may be deductible as a charitable contribution. Code Section 170(c).

Relocation of home. The government-ordered demolition or relocation of a home that is unsafe to use because of a disaster may give rise to a deductible casualty loss. Code Section 1033(h).

Remainder interest - Contribution in trust. A transfer of a remainder interest to a charitable organization gives rise to a charitable contribution deduction only if it is the remainder interest in a charitable remainder annuity trust, charitable remainder unitrust, or pooled income fund. Code Section 170(f)(2)(A).

Remainder interest - Contribution not in trust. The contribution of a remainder interest is deductible as a charitable contribution if it: (1) is the remainder interest in a personal residence or farm, (2) represents an undivided portion of the donor's entire interest in property, (3) represents a partial interest in property where all of the donor's interests in the property are given to one or more charities, or (4) is a remainder interest in real property donated exclusively for conservation purposes. Code Section 170(f)(3)(B).

Remedial language training. The cost of remedial language training to correct a learning disability is a deductible medical expense. Fay v. Commissioner, 76 T.C. 408 (1981).

Remedial reading courses. A remedial reading course for a child with dyslexia caused by congenital damage to the brain is deductible as a medical expense. Rev. Rul. 69-607, 1969-2 C.B. 40.

Removal of barriers. A taxpayer may elect to deduct up to $15,000 of expenditures for making a facility or public transportation vehicle used by the taxpayer in his trade or business more accessible to and usable by handicapped and elderly individuals, rather than treating it as a capital expense. Code Section 190.

Rent. Amounts paid to rent property used in the taxpayer's work that are not reimbursed are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-1(a). However, amounts paid to rent property for residential purposes are non-deductible personal expenses. Reg. Section 1.262-1(b)(3). The cost of renting an apartment for the taxpayer's son, upon the advice of a psychiatrist that it would be therapeutic for him to have the responsibility of caring for himself, is a personal expense and is not deductible as a medical expense. PLR 8651055.

Rent-free use of property. The conveyance of rent-free use and occupancy of the taxpayer's real property to a qualified charitable organization gives rise to a charitable contribution deduction only if the right conveyed constitutes an undivided portion of the taxpayer's entire interest in the property. Peters v. Commissioner, T.C. Memo. 1976-170.

Rent not collected. If the taxpayer's tenant fails to pay rent to the taxpayer for the use of the taxpayer's property, the taxpayer cannot claim the value of the unpaid rent as a deductible theft or casualty loss. Kopunek v. Commissioner, T.C. Memo. 1987-417.

Rental expenses. A taxpayer who rents out property generally can deduct rental expenses such as advertising, cleaning and maintenance services, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, and ordinary and necessary travel and transportation. If the taxpayer uses the property as a home and rents it out for fewer than 15 days during the year, the taxpayer does not have to include in income any rental income but cannot deduct any rental expenses. Code Section 280A(g). If the taxpayer uses the property as a home and rents it out for 15 days or more during the year, the taxpayer can deduct rental expenses only to the extent of rental income. Code Section 280A(c)(5).

Repairs – Business. The cost of repairs that keep property used in the taxpayer's work in a normal, efficient operating condition, if not reimbursed, are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-1(a).

CAUTION: Repairs that add to the value of the property or significantly increase its life must be capitalized. Reg. Section 1.162-4.

Repairs - Residential. A homeowner cannot deduct the cost of repairs that keep his personal residence in an ordinary, efficient operating condition such as repainting the home inside or outside, fixing gutters or floors, fixing leaks or plastering, or replacing broken window panes.

NOTE: The costs of repairs to a room used exclusively for business purposes are deductible in full. Rev. Rul. 62-80, 1962-2 C.B. 52.

Repayments. A taxpayer who must repay less than $3,000 she included in her income in an earlier year because, at the time, she thought she had an unrestricted right to it, may deduct the repayment as a miscellaneous itemized deduction subject to the 2 percent floor. Code Section 1341.

NOTE: If the repayment is more than $3,000, a taxpayer can deduct the amount repaid in the year of repayment (as a miscellaneous itemized deduction subject to the 2 percent floor), or to take a credit for the difference in the tax that was paid in the earlier year and the amount of tax that would have been due in the earlier year if the payment had not been included in income. Code Section 1341.

Repayments of Social Security benefits. If a taxpayer repays $3,000 or less of Social Security Benefits in a year, he may be able to take a miscellaneous itemized deduction subject to the 2 percent floor. Code Section 1341.

Replacing lost securities. A taxpayer who must post an indemnity bond to replace taxable securities that are mislaid, lost, stolen, or destroyed can deduct the premium paid to buy the bond and the related incidental expenses as investment expenses, subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 62-21, 1962-1 C.B. 37.

Repurchase premium. If bonds are issued by a corporation and subsequently repurchased by the corporation at a price in excess of the issue price, plus any amount of original issue discount deducted prior to repurchase, or minus any amount of premium returned as income prior to repurchase, the excess of the repurchase price over the issue price adjusted for amortized premium or deducted discount is deductible as interest for the taxable year. Reg. Section 1.163-4(c)(1).

Research expenses. A college professor's research expenses (including travel expenses), for teaching, lecturing, or writing and publishing on subjects that relate directly to the field of the professor's teaching duties that are not reimbursed are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 63-275, 1963-2 C.B. 85. Reasonable expenses for research and typing incurred in connection with work-related education are deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions where the costs of the related educational courses qualify as deductible work-related employee expenses. Rev. Rul. 67-421, 1967-2 C.B. 84.

Residential construction tax. A residential construction tax, levied by a school district on each residential unit constructed in the district, does not constitute a deductible real estate tax because it is not levied for the general welfare but solely for school purposes, it is not triggered by the ownership of real property but by the use of it to build a residence, and it is not measured by the value of the real property but is a flat rate per residence to be constructed, regardless of value. PLR 8117149.

Residential property. A loss sustained on the sale of the taxpayer's personal residence is a non-deductible personal loss. Reg. Section 1.165-9(a).

NOTE: The costs of repairs to a room used exclusively for business purposes are deductible in full. Rev. Rul. 62-80, 1962-2 C.B. 52.

Residential telephone service. The cost of basic local telephone service for the first telephone line to the taxpayer's residence is treated as a non-deductible personal expense, even if that telephone line is used in a trade or business. Code Section 262(b).

Resume. The costs of typing, printing, and mailing copies of a resume to prospective employers are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer is looking for a new job in her present occupation. Rev. Rul. 77-16, 1977-1 C.B. 37.

CAUTION: A taxpayer who has a substantial break between the time of her former job and looking for a new one cannot deduct these expenses because she is no longer engaged in a trade or business. Rev. Rul. 75-120, 1975-1 C.B. 55.

Retirement of asset. A taxpayer may claim a loss deduction for the abnormal retirement or property used in a trade or business, which occurs when the asset is withdrawn earlier than the taxpayer customarily retires similar assets or under other circumstances such as when an asset has been damaged by a casualty or suddenly lost its usefulness as the result of an extraordinary obsolescence. Reg. Section 1.167(a)-8.

Retirement home - Charitable deduction. Contributions to a retirement home that are clearly for room, board, maintenance, or admittance are not deductible as charitable contributions. Also, if the amount of a contribution depends on the type or size of apartment the donor will occupy it is not a charitable contribution. Publication 526, Charitable Contributions.

Retirement home - Medical expense deduction. Where an individual is in an institution for medical reasons, and meals and lodging are furnished as a necessary incident to the continual medical care provided, the entire cost of medical care and meals and lodging at the institution is a deductible medical expense. Reg. Section 1.231-1(e)(1)(v)(a).

CAUTION: If an individual is in an institution for personal or family reasons, not principally because of the availability of medical care in the institution, only that part of the cost of care in the institution that is attributable to medical care is a deductible medical expense. Reg. Section 1.213-1(e)(1)(v)(b).

Right of way. A taxpayer who dedicates a right of way to a local government can claim a charitable contribution deduction for the value of the property dedicated as long as the taxpayer does not receive a material benefit in return for the dedication. Connell v. Commissioner, T.C. Memo. 1986-333.

Right to buy tickets. 80 percent of any payment to or for an institution of higher education that would otherwise qualify as a charitable deduction but for the fact that the donor receives the right to buy tickets for seating at athletic events in an athletic stadium of the institution is treated as a charitable contribution. Code Section 170(l).

Right to use. The donation of a mere right to use the taxpayer's property such as allowing a municipal fire department to house a fire engine in the taxpayer's garage, does not qualify as a deductible charitable contribution because the right to use property does not constitute an undivided portion of the taxpayer's entire interest in the property. Logan v. Commissioner, T.C. Memo. 1994-445.

Robbery. Money or property taken from a taxpayer by robbery may be deductible as a theft loss. Reg. Section 1.165-8(d).

Rollback tax. A rollback tax, an additional tax imposed by state law when property with a certain zoning classification is changed from agricultural use to a different use, is a deductible real property tax. Sandy Lake Road Limited Partnership v. Commissioner, T.C. Memo. 1997-295.

Roth IRA. No deduction is allowed for contributions to a Roth IRA, although earnings and withdrawals are tax-free. Code Section 408A(c)(1).

S

Sabbatical – Moving expenses. A university professor who goes on sabbatical leave for both an anticipated and actual duration of ten months in order to engage in post-doctoral research training, and in doing so moves from the university to the location of the training, cannot claim a moving expenses deduction for the cost of the move. Rev. Rul. 74-242, 1974-1 C.B. 69.

Sabbatical – Employee expenses. A teacher who travels to one or more distant locations during a sabbatical leave may deduct the expenses of this travel as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the travel was made in order to undertake study or research or if the travel had a direct relationship to the skills required in his teaching position and was expected to result in actual or potential benefit to him as a teacher holding such position. Rev. Rul. 64-176, 1964-1 C.B. 87. A faculty member who is granted a sabbatical leave at full salary and, as a condition of being granted the leave and of continued employment, must pay a fixed nonrefundable percentage of such salary into a fund used to compensate substitute faculty members during the leave period, may deduct amounts paid into the fund as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 76-286, 1976-2 C.B. 41.

Safe. Because a safe is a capital asset, the cost of purchasing a safe for the taxpayer's home is not deductible as an investment expense even if the safe is used to store securities and other financial instruments, although depreciation on the safe may be deductible to the extent the safe is used to store investment-related papers rather than personal effects such as jewelry. PLR 8218037.

Safe deposit box. The rent paid on a safe deposit box is deductible as an investment expense subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer uses the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. Kelly v. Commissioner, 23 T.C. 682 (1955), aff'd, 228 F.2d 512 (7th Cir. 1956). The cost of renting a safe deposit box in order to store jewelry and other personal effects is not a deductible investment expense. Reg. Section 1.212-1(f).

Sailboat. Expenses incurred in moving a sailboat from the taxpayers' old residence to their new residence in connection with a job-related move are deductible moving expenses. Fogg v. Commissioner, 89 T.C. 310 (1987).

Sale of property – Personal use. A loss from the disposition of property held for personal use, including the taxpayer's personal residence, is not deductible. Reg. Section 1.165-9(a).

Sale of property – Business or rental use. A loss on the sale of property used for business or rental purposes may be deductible as a capital or ordinary loss. Code Sections 61(a)(3), 1222.

Salesperson. A full-time traveling or city salesperson engaged in the solicitation, on behalf of and in the transmission to his principal, of orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments for merchandise for resale or for supplies for use in the principal's business operations, may qualify as a statutory employee who can deduct unreimbursed employee business expenses above the line in computing adjusted gross income, rather than as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 90-93, 1990-2 C.B. 33.

Salt-free food. A taxpayer required to maintain a salt-free diet due to a heart condition may deduct, as a medical expense, any additional charge in excess of the cost of regular food imposed by restaurants for the preparation of salt-free food, as well as taxi fares to restaurants which would serve salt-free meals. Cohn v. Commissioner, 38 T.C. 387 (1962).

Salvation Army. Donations of money or property to the Salvation Army are deductible as charitable contributions. Rev. Rul. 59-129, 1959-1 C.B. 58.

Samples. The cost of distributing free food and beverages to the general public, is fully deductible (not subject to the general 50 percent limitation on meal and entertainment expenses), if the distribution is made as a means of advertising or promoting goodwill in the community. Reg. Section 1.274-2(f)(2)(viii). A direct seller can deduct the cost of samples given to customers, but not the cost of any samples personally used by the seller. IRS Pub. 911, Direct Sellers.

Scenic easement. The donation of a qualified real property interest to preserve open space (including farmland and forest land), will be a qualified conservation contribution if the preservation is for the scenic enjoyment of the general public and will yield a significant public benefit. Code Section 170(h)(4)(A)(iii); Reg. Section 1.170A-14(d)(4)(i).

Schools. A donation of money or property to a nonprofit school is deductible as a charitable contribution only if it is a voluntary transfer that is made with no expectation of obtaining a commensurate benefit such as enrollment or tuition for the donor's child, in exchange for the transfer. Rev. Rul. 83-104, 1983-2 C.B. 46.

Scientific research. A taxpayer who engages in scientific research and publishes his findings in various scientific journals cannot claim a charitable contribution deduction for the value of his contributions to science. Fox v. Commissioner, T.C. Memo. 1963-247.

Scientology. The cost of Scientology processing or auditing, in which each person being audited is asked the same specific set of questions while holding an instrument to electronically monitor responses, is not a deductible medical expense. Brown v. Commissioner, 62 T.C. 551 (1974), aff'd per curiam, 523 F.2d 365 (8th Cir. 1975).

Second home. Interest paid on a loan secured by the taxpayer's home, including a second home, is deductible home mortgage interest. Code Section 163(h)(3). If the taxpayer rents out the second home during part of the year, the taxpayer also must use the home as a residence for more than 14 days or more than 10 percent of the number of days during the year that the home is rented at a fair rental, whichever is longer, for the home to qualify for the home mortgage interest deduction rather than as rental property. Code Sections 163(h)(4)(A)(i)(II), 280A(d)(1).

Second mortgage. Interest paid on a second mortgage loan secured by the taxpayer's home, including a second home, is deductible. Reg. Section 1.163-10T(c)(2), Ex. 2.

Section 179 property. A taxpayer may elect to treat the cost of any Section 179 property (certain tangible property purchased for use in the active conduct of a trade or business), as an expense which is not chargeable to capital account and instead claim a deduction for the amount of the cost for the taxable year in which the property is placed in service. Code Section 179(a).

Security deposit. A security deposit, including any given up due to a move, is not deductible as a moving expense. IRS Pub. 521, Moving Expenses.

Seeing eye dog. The cost of a seeing eye dog for a blind person, including amounts paid for care, is deductible as a medical expense. Reg. Section 1.213-1(e)(1)(iii); Rev. Rul. 57-451, 1957-2 C.B. 516.

Self-created property. A taxpayer such as an artist, who donates self-created property to a qualified charity is only allowed a charitable contribution deduction for the cost to create the property, excluding the value of the taxpayer's work. Code Section 1.170A-4(b).

Self-employed health insurance deduction. A self-employed individual may deduct a certain percentage of the amount paid for health insurance coverage for himself and his family. For 2002, the applicable percentage is 70 percent; for 2003 and subsequent years, it increases to 100 percent. Code Section 162(l)(1).

Self-employed SEP, SIMPLE, or qualified plan. A self-employed individual with at least $5,000 in annual net earnings from self-employment may deduct contributions to a Savings Incentive Match Plan for Employees (SIMPLE) on her own behalf above the line. Code Section 408(p). Similarly, a self-employed individual may establish a Simplified Employee Pension (SEP) and make contributions that are deductible of up to 25 percent of her net earnings from self-employment. Code Section 498(k)(7).

Securities. If any security that is a capital asset becomes worthless during the year, the resulting loss is deductible as a capital loss. Code Section 165(g).

Security guards. The cost of hiring security personnel to guard the taxpayer's personal residence is a non-deductible personal expense. Holmes v. Commissioner, T.C. Memo. 1983-442.

Self-employment taxes. One-half of self-employment taxes are deductible above the line in arriving at adjusted gross income. Code Section 164(f).

Service animals. The cost and care of guide dogs and other animals aiding the blind, deaf, and disabled are deductible as a medical expense. Reg. Section 1.213-1(e)(1)(iii) (seeing eye dog); Rev. Rul. 68-295, 1968-1 C.B. 92 (dog to assist deaf person); Rev. Rul. 55-261, 1955-1 C.B. 307 (seeing eye dog).

Service fees. A taxpayer generally cannot claim a business entertainment deduction for more than the face value of a ticket for any activity or facility, so that no deduction is available for service fees paid to ticket agencies or amounts above the face value paid to scalpers. Code Section 274(l)(1)(A).

Service charges - Dividend reinvestment plans. Service charges paid by a subscriber to a dividend reinvestment plan, which permits the subscriber to use his dividends to purchase more shares of stock in the corporation instead of receiving cash, are investment expenses deductible as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 70-627, 1970-2 C.B. 159.

Services. A taxpayer cannot claim a charitable contribution deduction for services donated to a qualified charity. Unreimbursed expenditures made incident and solely attributable to the rendition of those services may be deductible. Reg. Section 1.170A-1(g).

Sex change. Expenses incurred in connection with an operation to change the gender of the taxpayer's child are deductible as medical expenses. PLR 8321042.

Sexual therapy. The cost of psychiatric treatment for sexual inadequacy and incompatibility was ruled by the IRS to be a deductible medical expense. Rev. Rul. 75-187, 1978-2 C.B. 92.

Shipping. The cost of sending baggage and sample or display material between regular and temporary work locations is deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. IRS Pub. 463, Travel, Entertainment and Gift Expenses.

Shipwrecks. Losses arising from a shipwreck may be deductible casualty losses. Code Section 165(c)(3).

Shoes. The cost of orthopedic shoes, in excess of the cost of regular shoes, is deductible as a medical expense, as is the cost of an additional pair of shoes necessitated by the fact that one foot of a cerebral palsy victim is smaller than the other. PLR 8221118.

Shrinkage. If, in the course of the business of farming, farm products are held for a favorable market, no loss deduction shall be allowed in respect of such products merely because of shrinkage in weight, decline in value, or deterioration in storage. Reg. Section 1.165-6(b).

Sick pay. If a taxpayer repays sick leave or disability annuity payments received in an earlier year to be eligible for non-taxable Federal Employees Compensation Act (FECA) benefits, the taxpayer can deduct the amount repaid as a miscellaneous itemized deduction subject to the 2 percent floor. Rev. Rul. 79-322, 1979-2 C.B. 76.

Sign language. The cost of special education such as sign language or lip reading, designed to alleviate the effects of deafness is deductible as a medical expense. Baer v. Commissioner, T.C. Memo. 1967-34.

Simplified Employee Pension (SEP). A simplified employee pension (SEP) is a written plan that allows an employer to make deductible contributions to individual retirement arrangements (IRAs) set up for plan participants. A self-employed person who makes contributions to his own SEP-IRA can deduct above-the-line contributions of up to 25 percent of his net earnings from self-employment, with an adjustment because the deduction amount and net earnings amount are dependent on each other. Code Section 408(k).

Skyboxes. If a taxpayer rents a skybox or other private luxury box for more than one event at the same sports arena, the taxpayer generally cannot deduct more than the cost of a non-luxury box seat ticket even if the event otherwise qualifies as a business entertainment expense. Code Section 274(l)(2).

Slippage of land. Slippage of land can be the cause of a deductible personal casualty loss. The slippage of land can occur over a period of several months. Bailey v. Commissioner, T.C. Memo 1983-685.

Small tools and supplies. The cost of small tools and supplies a taxpayer uses in work may be deductible as an unreimbursed employee business expense subject to the 2 percent floor on miscellaneous itemized deductions. Wilson v. Commissioner, T.C. Memo. 2001-301. Publication 529, Miscellaneous Deductions.

Smog. In one situation, the IRS held that damage caused in a single day by an incident of extremely corrosive smog was held to be a deductible personal casualty loss. The IRS stated, however, that progressive damage by normal smog over a long period of time would not be considered a casualty loss. Rev. Rul. 71-560, 1971-2 C.B. 126.

Smoking cessation programs. Smoking cessation programs and prescription drugs designed to alleviate nicotine withdrawal are deductible as medical expenses. Rev. Rul. 99-28, 1999-1 C.B. 1269.

Snow. Snow can be the cause of a deductible personal casualty loss. Hollington v. Commissioner, T.C. Memo. 1956-32; Jackson v. Commissioner, T.C. Memo. 1955-304.

Snow blower. The cost of a riding tractor with a snow blower used to clear the taxpayer's driveway is a non-deductible personal expense, even if a doctor recommends the purchase due to the taxpayer's back problems. Lepson v. Commissioner, T.C. Memo. 1982-304.

Social activities. Social activities such as dancing or swimming lessons, are not deductible medical expenses even if recommended by a doctor for the taxpayer's general health. Thoene v. Commissioner, 33 T.C. 62 (1959). However, where a doctor advised the taxpayer to mix with other people for the purpose of alleviating her mental depression due to the mutilation of her face in a car accident, the out-of-pocket expenses for driving in order to mix with other people as part of her treatment are deductible medical expenses. Bordas v. Commissioner, T.C. Memo. 1970-97.

Social club. Money or property donated to a social club is not deductible as a charitable contribution. Rev. Rul. 69-573, 1969-2 C.B. 125. In addition, no deduction is permitted for amounts paid or incurred for membership in any social club. Code Section 274(a)(3).

Social security taxes. A wage earner cannot deduct payments of social security and Medicare taxes. Code Section 275(a)(1).

NOTE: One half of a taxpayer’s self-employment taxes are deductible above the line. Code Section 164(f).

Social security taxes – Household employee. A taxpayer generally cannot deduct the social security tax paid on behalf of a household employee. Publication 17, Your Federal Income Tax.

Social security taxes – Repayment. If a taxpayer repays $3,000 or less of Social Security Benefits in a year, he may be able to take a miscellaneous itemized deduction subject to the 2 percent floor. Code Section 1341.

Sonic booms. Losses sustained from damage to property as the result of a "sonic boom" caused by an airplane exceeding the speed of sound constitute deductible casualty losses. Rev. Rul. 60-329, 1960-2 C.B. 67.

Special assessments. Although state or local real property taxes generally are deductible, taxes assessed for local benefits are deductible only if they are allocated to maintenance or interest charges or are levied by certain special taxing districts that were in existence on December 31, 1963, for the purpose of retiring existing indebtedness. Reg. Section 1.164-4(b).

Special school or home for mentally or physically disabled persons. The cost (including meals, lodging, and education expenses), of attending a special school for a mentally or physically handicapped individual is a deductible medical expense where alleviation of the handicap is a principal reason for attending the school. Reg. Section 1.213-1(e)(1)(v)(a). A school is considered "special" when its primary function is to furnish medical care, and education is only incidental to that function. Fischer v. Commissioner, 50 T.C. 164 (1968), acq. 1969-2 C.B. 24.

Spiritual guidance. The cost of spiritual guidance or counseling is not deductible as a medical expense. Miller v. Commissioner, T.C. Memo. 1980-136.

Split-dollar life insurance arrangements. No deduction will be allowed where a taxpayer makes a donation to a charity with the understanding that the charity will use the transferred funds, or a portion thereof, to pay the premiums of a life insurance policy on the taxpayer's life and the death proceeds will be split between the charity and the taxpayer's beneficiaries at the time of the taxpayer's death. Code Section 170(f)(10).

Sporting events. The cost of entertaining guests at a sporting event may be deductible as an unreimbursed employee expense if the entertainment is associated with or directly related to the taxpayer's work. Reg. Section 1.274-2(b)(1)(i).

Sports club. Money or property donated to a sports club is not deductible as a charitable contribution. IRS Pub. 526, Charitable Contributions.

Squirrels. Because it is commonly known that squirrels are destructive, damage caused to the roof of a taxpayer's home by squirrels is not unexpected or unusual and thus is not deductible as a casualty loss. PLR 8133097.

Stamp tax. A documentary stamp tax levied by a state on mortgages, trust deeds, or other evidences of indebtedness filed or recorded in the state may be deductible as a tax, but if the tax is more closely related to obtaining construction loans than to acquiring the underlying real property, it must be amortized over the terms of the construction loans. Sleiman v. Commissioner, T.C. Memo. 1997-530.

State taxes. A taxpayer may deduct state and local income taxes, real estate taxes, and personal property taxes. Code Section 164(a).

Statutory employees. Individuals in specified occupational groups (commonly referred to as statutory employees), can deduct unreimbursed employee business expenses above the line in computing adjusted gross income, rather than as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 90-93, 1990-2 C.B. 33.

Stenographer. Public stenographer fees incurred while away from home on business may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-2(a).

Sterilization. The cost of an operation to render the taxpayer incapable of having children is deductible as a medical expense. Rev. Rul. 73-603, 1973-2 C.B. 76. An operation to reverse sterilization also may be deductible as a medical expense. IRS Pub. No. 502, Medical and Dental Expenses.

Stock - Charitable contribution. A taxpayer who makes a charitable contribution consisting of stock or other property that has increased in value may claim a deduction of the fair market value of the stock, reduced by the amount of gain that would have been recognized if the property had been sold at its fair market value at the time of the contribution. Code Section 170(e)(1)(A).

Stock - Casualty or theft loss. A taxpayer who was required to liquidate his trading account at a loss in order to meet a margin call by his broker following the substantial decline of the Dow Jones Industrial Average in a single day, cannot deduct the loss incurred on the sale of this stock as a casualty or theft loss. Hart v. Commissioner, T.C. Memo. 1997-11.

Stockholder meetings. No deduction is allowed for the cost of transportation and other expenses paid to attend stockholder meetings of companies in which the taxpayer owns stock but has no other interest, even if the taxpayer is attending the meeting to get information that would be useful in making further investments. Rev. Rul. 56-511, 1956-2 C.B. 170.

Stop-smoking programs. Smoking cessation programs and prescription drugs designed to alleviate nicotine withdrawal are deductible as medical expenses. Rev. Rul. 99-28, 1999-1 C.B. 1269.

Storage costs. If a taxpayer moves to a new location in connection with the start of a new job, the costs of storing and insuring household goods and personal effects within any period of 30 consecutive days after the day the things are moved from the taxpayer's former home and before they are delivered to the new home are deductible as moving expenses. Reg. Section 1.217-2(b)(3). If a taxpayer moves to a foreign country to start new employment, the cost of moving household goods and personal effects to and from storage and of storing household goods and personal effects while the taxpayer continues working at the new place of employment is deductible as a moving expense. Code Section 217(h).

Storms. The damage caused by a storm may be deductible as a casualty loss. Code Section 165(c)(3). Damage caused by a series of closely timed storms does not necessarily constitute damage in the nature of progressive deterioration caused by a steadily operating force, and thus may give rise to a deductible casualty loss. O'Neill v. Commissioner, T.C. Memo. 1983-583.

Student in home. A charitable contribution deduction is allowed for amounts spent to maintain a foreign or American student as a member of the taxpayer's household. Code Section 170(g). The student must live in the taxpayer's home under an agreement with a qualifying organization as part of a program to provide educational opportunities for the student, cannot be a dependent or relative, and must be a full-time student in the twelfth grade or lower. Code Section 170 (g) (1). Expenses that qualify for the deduction include the cost of books, tuition, food, clothing, transportation, medical and dental care, entertainment, and other amounts spent for the well-being of the student. The amount deductible may not exceed $50 multiplied by the number of full calendar months in the taxable year that the student is maintained in the taxpayer's home. Code Section 170(g)(2)(A).

Student loan fees. Loan origination fees, or the costs of getting a student loan, are treated as deductible student loan interest. Reg. Section 1.6050S-3(b)(1).

Student loan interest. A taxpayer with modified AGI under certain ceilings may deduct, as an adjustment to income, up to $2,500 per year in interest paid on a qualified educational loan. Code Section 221.

Support bars. Installing support bars, grab bars, or railings in the bathrooms or other areas of the taxpayer's home in order to accommodate a disability of the taxpayer or her spouse or dependents is treated as a deductible medical expense rather than a capital expenditure. Rev. Rul. 87-106, 1987- 2 C.B. 67.

Swimming pool. The costs of installing and maintaining a swimming pool may be deductible as medical expenses if the primary purpose of the swimming pool is the cure or mitigation of a physical defect or disease and no alternative, less expensive facilities are available. Cherry v. Commissioner, T.C. Memo. 1983-470.

Synagogue. Donations to a synagogue or other religious organizations are deductible as charitable contributions. Code Section 170(b)(1)(A)(i).

T

Takings. Although the compulsory or involuntary conversion of property by seizure, requisition, condemnation, or as the result of the threat or imminence of requisition or condemnation, generally produces taxable gain, the recognition of which may be deferred under certain circumstances (Code Section 1033), it also may give rise to a deductible loss. PLR 200014042.

Tax advice. Expenses paid or incurred by an individual in connection with the determination, collection, or refund of any tax, including expenses for tax counsel, tax return preparation, or connected with any proceedings involved in determining the extent of tax liability or in contesting tax liability, are deductible as miscellaneous itemized deductions subject to the 2 percent floor. Reg. Section 1.212-1(l).

Tax equivalency payments. Tax equivalency payments, or payments in lieu of taxes (PILOT), measured by and equal to the amounts imposed by the regular real estate tax statutes, and designated for a public purpose rather than a local benefit tending to increase the value of the property upon which the payments are made, are deductible as real estate taxes. Rev. Rul. 71-49, 1971-1 C.B. 103.

Tax-exempt income. No deduction is allowed for expenses paid to produce tax-exempt income, including interest on a debt incurred to buy tax-exempt securities. Code Section 265(a).

Tax planning seminar. Although the cost of legitimate tax advice and tax planning is deductible as a investment expense subject to the 2 percent floor on miscellaneous itemized deductions, no deduction is available for the cost of a tax planning seminar that promotes fraudulent tax shelters (Hoye v. Commissioner, T.C. Memo. 1990-57) or for the cost of publications and seminars relating to family trusts designed to avoid the recognition of taxable income. Contini v. Commissioner, 76 T.C. 447 (1981).

Tax preparation fees. Tax preparation fees, including the cost of tax preparation software programs, tax publications, and any fees paid for electronic return filing, are deductible in the year paid as miscellaneous itemized deductions subject to the 2 percent floor. Code Section 212(3).

Tax publications. The cost of a tax publication is deductible as an investment expense subject to the 2 percent floor on miscellaneous itemized deductions. Fausner v. Commissioner, T.C. Memo. 1971-277.

Taxes. All taxpayers may deduct state, local, and foreign real property taxes and income taxes, as well as state and local personal property taxes. Code Section 164(a). Foreign taxes are deductible only if the taxpayer does not elect to claim the foreign tax credit. Code Section 275(a)(4)(A). Federal taxes otherwise are not deductible. Code Section 275(a)(1).

CAUTION: Interest on income tax deficiencies and additions to tax is generally considered to be non-deductible personal interest of the individual taxpayer. Perkins v. Commissioner, 92 T.C. 749 (1989).

NOTE: One half of a taxpayer's self-employment taxes are deductible above the line. Code Section 164(f).

Taxes – Automobile registration. State and local taxes on the registration or licensing of highway motor vehicles are deductible as personal property taxes only if the tax is ad valorem, or substantially in proportion to the value of the motor vehicle, and is imposed on an annual basis. Reg. Section 1.164-3(c)(3). Vehicle license and registration fees may be deducted as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions if they are incurred in the course of the taxpayer's work. Rul 74-454, 1974-2 C.B. 57.

Taxi fare – Business related. Travel expenses, including transportation by taxi, commuter bus, and airport limousine from an airport or station to the taxpayer's hotel, from the hotel to the work location or business meeting place, from one customer to another, or from one place of business to another, may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.274-5T(b)(2)(i).

CAUTION: Taxi fare and other travel expenses for going between home and a taxpayer’s principal place of work are commuting expenses and are not deductible. Reg. Section 1.262-1(b)(5).

Taxi fare – Medical related. Transportation primarily for, and essential to, medical care may be deductible as a medical expense. Reg. Section 1.213-(1)(e).

Teacher certification in a new state. A taxpayer who has met the minimum educational requirements for teachers in one state is considered to have met the minimum educational requirements in all states, even if additional education is required in order to be certified in another state, and thus may deduct as work-related educational expenses the cost of any additional education needed to qualify as a teacher in another state. Rev. Rul. 71-58, 1971-1 C.B. 55.

Telegraph. Telephone and telegraph expenses incurred while away from home on business may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-2(a).

Telephone. Business calls, including communications by fax machine and other communications devices, while away from home on business may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-2(a).

Telephone equipment. The cost of special equipment that allows a deaf person to communicate by telephone is deductible as a medical expense. Rev. Rul. 71-48, 1971-1 C.B. 99. The cost of repairs to the equipment also is a medical expense. Rev. Rul. 73-53, 1973-1 C.B. 139.

Telephone service. No deduction is allowed for the cost of basic local telephone service for the first telephone line to the taxpayer's residence, even if it is used in a trade or business. Code Section 262(b).

Telephone taxes. Taxes imposed on a telephone bill or on other utility bills are not deductible taxes. Fife v. Commissioner, 73 T.C. 621 (1980).

Television adapter. A television adapter that displays subtitles on a television screen for hearing-impaired persons is deductible as a medical expense. Rev. Rul. 80-340, 1980-2 C.B. 81.

Temple. Donations to a synagogue or temple, or to other religious organizations, are deductible as charitable contributions. Code Section 170(b)(1)(A)(i).

Temporary living expenses. Temporary living expenses incurred in connection with a move so the taxpayer can start work at a new location are not deductible as moving expenses. Reg. Section 1.217-2(b)(4).

Temporary work assignment. An employee who is away from home in connection with a temporary work assignment can deduct the related expenses as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the assignment or job is realistically expected to last (and does in fact last), for one year or less. Code Section 162(a).

Temporary work location. The cost of transportation from the taxpayer's residence to a temporary work assignment may be deductible unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Cockrell v. Commissioner, 321 F.2d 504 (8th Cir. 1963).

Tennis clothes. A tennis professional cannot deduct the cost of tennis clothes and tennis shoes required for his job because these items are suitable for general or personal wear. Mella v. Commissioner, T.C. Memo. 1986-594.

Termites. Although some courts have held that damage caused by termites was sufficiently sudden to qualify as a casualty loss (Rosenberg v. Commissioner, 198 F.2d 46 (8th Cir. 1952)), other courts (Dodge v. Commissioner, 25 T.C. 1022 (1956)) and the IRS have taken the position that damage caused by termites constitutes a non-deductible loss due to progressive deterioration. Rev. Rul. 63-232, 1963-2 C.B. 97.

Terrorism. Although there is no specific deduction for losses due to terrorism, the IRS will forgive the federal income tax liabilities of decedents who died as a result of the Oklahoma City attack, the September 11 attacks, and anthrax attacks. Income tax is forgiven for these decedents whether they were killed in an attack or in rescue or recovery operations. IRS Pub. 3920, Tax Relief for Victims of Terrorist Attacks.

Theater tickets. A taxpayer who gives a customer tickets to a theater performance or sporting event, but does not attend the event with the customer, may treat the cost of the tickets either as a gift or as entertainment, whichever is more favorable. If the taxpayer goes to the event with the customer, the taxpayer must treat the cost of the tickets as an entertainment expense. Reg. Section 1.274-2(b)(1)(iii)(b)(2).

Theatrical clothing. Actors, musicians, and entertainers may be able to deduct the cost of theatrical clothing and accessories that are not suitable for ordinary use as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Nelson v. Commissioner, T.C. Memo. 1966-224.

Theft. A deduction is allowed for a theft loss in the year that the theft is discovered. Theft is the taking of money or property with the intent to deprive the owner of it. The taking of the property must be illegal under the laws of the state in which it occurred and must have been done with a criminal intent. The amount of a theft loss is the lower of the fair market value or basis of the property stolen, less the value of any property recovered or any reimbursement for the loss. Reg. Section 1.165-8; IRS Publication 547.

Theft - Recovery costs. A taxpayer can deduct expenses incurred to recover stolen property as a theft loss. Ander v. Commissioner, 47 T.C. 592 (1967).

Therapy. The cost of therapy received as medical treatment is a deductible medical expense. Reg. Section 1.213-1(e)(1)(ii).

Threats. If money or property is taken from a taxpayer by means of threats, the loss may be deductible as a theft loss. Rev. Rul. 72-112, 1972-1 C.B. 60.

Throat treatments. Throat treatments for a professional singer from a specialist on a regular basis are deductible as medical expenses. Rev. Rul. 71-45, 1971-1 C.B. 51, distinguished by Rev. Rul. 75-316, 1975-2 C.B. 54.

Tickets to charity event. If a taxpayer purchases admission tickets to a charity event, but does not intend to use the tickets, the taxpayer may contribute them to the charity and deduct the fair market value of the tickets donated as a charitable contribution. Rev. Rul. 74-348, 1974-2 C.B. 80.

Time share. A home owned under a time-sharing plan (an arrangement between two or more people that limits each person's interest in the home or right to use it to a certain part of the year), may qualify for the home mortgage interest deduction. IRS Pub. 936, Home Mortgage Interest Deduction.

Tips. Tips that are incident to a deductible expense such as the cost of meals while away from home on business, also are deductible. IRS Publication 463, Travel, Entertainment and Gift Expenses.

Toiletries. Toothpaste, toiletries, cosmetics, and the like are not deductible as medical expenses. Reg. Section 1.213-1(e)(2).

Tolls – Business travel. Out-of-pocket automobile expenses such as tolls and parking, attributable to business travel or other business use of an automobile may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Proc. 2002-61, 2002-39 I.R.B. 616, Section 5.04.

Tolls – Medical related travel. Out-of-pocket car expenses such as tolls and parking, are deductible as medical expenses when the car is used for medical reasons. Rev. Proc. 2002-61, 2002-39 I.R.B. 616, Section 7.04.

Tool transport. If the travel expenses of an employee from his home to his place of work are increased because he must transport tools and equipment used in his work, the portion of the expenses that represent the expense of transporting the tools and equipment are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Crowther v. Commissioner, 28 T.C. 1293 (1957).

Tools. The cost of small tools used in the taxpayer's work is deductible as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions if the tools wear out and are thrown away within one year from the date of purchase. Wilson v. Commissioner, T.C. Memo. 2001-301.

CAUTION: The cost of tools with a useful life that exceeds one year is recovered through depreciation, not deduction. Clemons v. Commissioner, T.C. Memo. 1979-273.

Tornadoes. The damage caused by a tornado may be deductible as a casualty loss. Rev. Rul. 64-329, 1964-2 C.B. 58.

Towing and crushing car. Where a taxpayer's car was towed and subsequently crushed by the city because its ownership could not be determined, the taxpayer is entitled to a deductible casualty loss. Even though the towing of his car should have been foreseen by the taxpayer as the likely result of his negligence in leaving the car where he did, the usual result of such negligent behavior would have been limited to a towing charge, making the destruction of the car an unusual, sudden, and unexpected event. Hananel v. Commissioner, T.C. Memo. 1991-386.

Trade association. A taxpayer may claim an unreimbursed employee expense deduction subject to the 2 percent floor on miscellaneous itemized deductions for dues paid to professional organizations, chambers of commerce, and similar organizations if membership helps the taxpayer carry out the duties of his job. Rev. Rul. 82-15, 1982-1 C.B. 29.

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Trade association meetings. A taxpayer may deduct entertainment expenses that are directly related to and necessary for attending business meetings or conventions of business leagues, chambers of commerce, real estate boards, trade associations, or professional organizations as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the expenses of attendance are directly related to the taxpayer's trade or business of being an employee. Code Section 274(e)(6).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Trade magazines. Subscriptions to professional journals and trade magazines related to the taxpayer's work may be deducted as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.67-1T(a)(1)(i).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Transfer taxes. No deduction is allowed for transfer taxes or stamp taxes on the sale of a personal residence. Gibbons v. Commissioner, T.C. Memo. 1976-125. If the buyer pays these taxes or charges, they are included in the buyer's cost basis of the property. If the seller pays them, they are expenses of the sale and reduce the amount realized on the sale. Code Section 164(a). Similarly, no deduction is allowed for state or local transfer taxes on the sale or purchase of securities. If the purchaser pays them, they are treated as part of the cost of the securities. If the seller pays them, they are treated as a reduction in the amount realized. IRS Pub. 550, Investment Income and Expenses.

Transportation – Business. The unreimbursed transportation expenses of an employee are deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Phillips v. Commissioner, T.C. Memo. 1973-58.

NOTE: The costs of traveling by airplane, train, bus, or car between a self-employed taxpayer's home and an away-from-home business destination are deductible as ordinary and necessary business expenses. Reg. Section 1.162-2(a).

CAUTION: Transportation expenses (taxi or bus fare, automobile expenses, etc.), for going between a taxpayer’s home and his principal place of work, whether the taxpayer is an employee or self-employed, are commuting expenses and are not deductible. Reg. Section 1.262-1(b)(5).

Transportation - Job search. Transportation expenses a taxpayer incurs while looking for a new job in the taxpayer's present occupation are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 77-16, 1977-1 C.B. 37.

CAUTION: A taxpayer who has a substantial break between the time of her former job and looking for a new one cannot deduct job search transportation expenses because she is no longer engaged in a trade or business. Rev. Rul. 75-120, 1975-1 C.B. 55.

Transportation - Medical. Transportation expenses primarily for and essential to medical care constitute deductible medical expenses. The medical expense deduction covers only the narrow term "transportation," rather than the broader term "travel," precluding the deduction of meals, lodging, and other living expenses under the term travel. Code Section 213(d)(1)(B). However, if a doctor prescribes an operation or other medical care and the taxpayer chooses for purely personal considerations to travel to another locality for the operation or the other medical care, neither the cost of transportation nor the cost of meals and lodging (except where paid as part of a hospital bill), is deductible. Reg. Section 1.213-1(e)(1)(iv). Transportation expenses of a parent who must go with a child who needs medical care are deductible medical expenses. Publication 502, Medical and Dental Expenses. A taxpayer can use the medical standard mileage rate to determine automobile expenses for medical transportation rather than using actual expenses. The standard mileage rate allowed for out-of-pocket expenses for a taxpayer's use of his car for medical reasons is 12 cents a mile for 2003 and 14 cents a mile for 2004. Rev. Proc. 2002-61, 2002-39 I.R.B. 616; Rev. Proc. 2003-76, 2003-43 I.R.B. __.

Transportation - by water. The amount of any otherwise allowable deduction for costs of business travel by water is limited to twice the highest federal per diem amount generally available to federal employees for travel in the United States, multiplied by the number of days in transit. Code Section 274(m)(1).

Transportation – Work-related education. If an individual travels away from home primarily to obtain work-related education, the expenses of which are deductible as unreimbursed employee expenses, expenses for travel, meals, and lodging while away from home also are deductible as long as the individual is away from home for a temporary period of time. Code Section 162(a). Similarly, a taxpayer who is regularly employed and goes to school directly from work may deduct the costs of traveling directly between work and school as unreimbursedemployee expenses if the education is work-related. IRS Pub. 508, Tax Benefits for Work-Related Education.

Travel – Business. Traveling expenses, including reasonable amounts expended for meals and lodging while away from home in the pursuit of a taxpayer's trade or business of being an employee may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Code Section 162(a)(2).

Travel – Production or collection of income. Traveling expenses incurred in the production or collection of income are deductible subject to the 2 percent floor on miscellaneous itemized deductions. Code Section 212.

Travel - Job search. If you travel to an area, and the trip is primarily for the purpose of looking for a new job in the taxpayer's present occupation, the travel expenses are deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Patterson v. Thomas, 289 F.2d 108 (5th Cir. 1961), cert. denied, 368 U.S. 387 (1961), reh'gdenied, 370 U.S. 966 (1962).

CAUTION: A taxpayer who has a substantial break between the time of her former job and looking for a new one cannot deduct job search travel expenses because she is no longer engaged in a trade or business. Rev. Rul. 75-120, 1975-1 C.B. 55.

Travel - Between business locations. Transportation expenses incurred in travel between one business location and another may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.67-1T.

Traveling salesperson. A full-time traveling or city salesperson engaged in the solicitation on behalf of and in the transmission to his principal, of orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments for merchandise for resale or for supplies for use in the principal's business operations, may qualify as a statutory employee who can deduct employee business expenses above the line in computing adjusted gross income, rather than as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 90-93, 1990-2 C.B. 33.

Treatment at a drug or alcohol center. The cost of treatment, including meals and lodging, at a drug abuse center (Rev. Rul. 72-226, 1972-1 C.B. 96) or at a therapeutic center for alcoholism is a medical expense. Rev. Rul. 73-325, 1973-2 C.B. 75.

Trust kit. The cost of a kit that instructs a taxpayer how to set up a family estate trust is not deductible as an investment expense or an educational expense. Rev. Rul. 79-324, 1979-2 C.B. 219.

Trustee commissions. A taxpayer that sets up a revocable trust and has the income distributed to him can deduct on the trustee's commission to the extent that it is related to the production of taxable income as a miscellaneous itemized deduction subject to the 2 percent floor. Publication 550, Investment Income and Expenses.

Tuition. In general, tuition is a non-deductible personal expense. Tuition for a work-related educational program may be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-5(a).

Tuition - Charitable deduction. Tuition payments to an educational institution generally are not charitable contributions to the institution because they are required payments for which the taxpayer receives benefits presumably equal in value to the amount paid. Channing v. United States, 67 F.2d 986 (1st Cir. 1933), cert. denied, 291 U.S. 686 (1934). If, however, a taxpayer can prove that the amount paid to the school exceeded the fair market value of a private education, the taxpayer may be entitled to a charitable deduction for the excess amount paid to the school under a dual payment argument. Sklar v. Commissioner, 279 F.3d 697 (9th Cir. 2002).

Tuition programs. Contributions to a qualified tuition program (QTP) established or maintained by a state or an educational institution to allow individuals to either prepay a student's tuition or contribute to an account established for paying a student's qualified higher education expenses are not deductible. Code Section 529.

NOTE: Amounts contributed to the plan grow tax free until withdrawn, and are not taxed if used to pay education expenses. Code Section 529(c).

Tutor. Tutoring fees paid on a doctor's recommendation for the tutoring of a child with severe learning disabilities caused by a neurological disorder, by a teacher who is specially trained and qualified to work with children who have severe learning disabilities, are deductible as medical expenses. Rev. Rul. 78-340, 1978-2 C.B. 124.

Two places of work. If a taxpayer works at two locations in one day, the cost of getting from one workplace to another may be deductible as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 55-109, 1955-1 C.B. 261.

Typing – Work-related education. The costs of research and typing when writing a paper as part of a qualified work-related educational program may be deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 67-421, 1967-2 C.B. 84.

Typing – Job search. Reasonable job search expenses, including the costs of typing, printing, and mailing copies of a resume to prospective employers may also be deductible as unreimbursedemployee expenses if the taxpayer is looking for a new job in her present occupation. Rev. Rul. 77-16, 1977-1 C.B. 37.

U

Unemployment compensation fund – State fund. Contributions to a state unemployment fund are deductible as state taxes if state law requires the taxpayer to make the contributions to a fund that covers the taxpayer for the loss of wages due to unemployment caused by business conditions.

Unemployment compensation fund – Union fund. Voluntary contributions to a union's unemployment compensation fund, which are made separate and apart from payments otherwise made by the members as union dues, are not deductible as union dues. Rev. Rul. 57-383, 1957-2 C.B. 44.

Uniforms – Volunteer work. If the uniforms must be worn while providing volunteer services for a qualified organization, their cost and upkeep are deductible as charitable contributions. Reg. Section 1.170A-1(g).

Uniforms – Work uniforms. The cost and upkeep of work clothes and uniforms is deductible as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions only if the taxpayer must wear them as a condition of his employment and the clothes are not suitable for everyday wear. Rev. Rul. 70-474, 1970-2 C.B. 34.

Unincorporated business tax. A city's tax on the unincorporated business taxable income of every unincorporated business wholly or partly carried on within the city is a deductible local income tax (PLR 8416060), just as a state's tax on the taxable net income of every unincorporated business, trade, profession, or occupation wholly or partly carried on by individuals within the state is a deductible state income tax. PLR 8411079.

Union dues, initiation fees, fines. Dues and initial fees paid for union membership are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Wilson v. Commissioner, T.C. Memo. 2001-301. Fines paid by a member to his union for violation of a union agreement are also deductible. Rev. Rul. 69-214, 1969-1 C. B. 52.

Union pension or unemployment funds. Payment of union assessments for the support of the union's old age pension fund, where members have no vested interest in any right to a pension although members expect to receive benefits, is a deductible unreimbursed employee expense. Rev. Rul. 54-190, 1954-1 C.B. 46. However, voluntary payments to an unemployment compensation plan set up by the union, where union members pay certain amounts into the fund and receive corresponding benefits, are not deductible as union dues. Rev. Rul. 57-383, 1957-2 C.B. 44. Neither are mandatory contributions to a union pension fund that entitles the taxpayer to a vested benefit. PLR 8037101.

Union hall. Even if a taxpayer is required to get his daily work assignments at a union hall and then go to his daily place of work, the costs of getting from the union hall to the place of work are non-deductible commuting expenses. Anderson v. Commissioner, 60 T.C. 834 (1973).

Union service charges. A taxpayer who is not a member of a labor union but who is required as a condition of employment to pay to a labor union a monthly service charge equal in amount to the dues paid by union members is entitled to deduct the amount of the service charge as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 68-82, 1968-1 C.B. 68.

United States possessions. No deductions are allowed for items connected to income from a U.S.possession that the taxpayer excludes from gross income on his U.S.income tax return. Code Sections 114(c), 275(a)(4).

United Way. Donations to the United Wayand other nonprofit charitable organizations are deductible as charitable contributions. Reg. Section 1.170A-9(e)(1)(ii).

Unpaid rent. If the taxpayer's tenant fails to pay rent to the taxpayer for the use of the taxpayer's property, the taxpayer cannot claim the value of the unpaid rent as a deductible theft or casualty loss. Kopunek v. Commissioner, T.C. Memo. 1987-417.

Unrecovered investment in an 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 as a miscellaneous itemized deduction not subject to the 2 percent floor. Code Section 72(b)(3)(A).

Unreimbursed employee expenses. Unreimbursedemployee expenses are deductible as miscellaneous itemized deductions subject to the 2 percent floor. Reg. Section 1.67-1T(a)(1)(i).

CAUTION: If a taxpayer is eligible to be reimbursed for an expense from her employer but fails to make a proper claim for reimbursement, the expense is not deductible. Dixon v. Commissioner, T.C. Memo 1999-310.

Unused business credits. If any portion of the qualified business credits determined for any taxable year has not, after the application of the carrybackand carryforward provisions, been allowed to the taxpayer as a credit for any taxable year, the taxpayer can claim a deduction in an amount equal to the credit not so allowed. Code Section 196.

Used clothing. The fair market value of used clothing donated to a qualified organization is deductible as a charitable contribution. Kaplan v. Commissioner, 43 T.C. 663 (1965).

Utilities. The cost of utilities such as gas, electricity, or water, in the taxpayer's home is a non-deductible personal expense. Rev. Rul. 92-3, 1992-1 C.B. 141. The costs of connecting or disconnecting utilities in order to move household goods, appliances, or personal effects in connection with a move to start a new job are deductible as moving expenses. Reg. Section 1.217-2(b)(3).

Utility company emergency energy programs. Donations to a utility company's emergency energy program are deductible as charitable contributions if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. Rev. Rul. 85-184, 1985-2 C.B. 84.

Utility taxes. A city tax imposed at the rate of 5 percent of the charges paid by consumers for gas, electric, and certain telephone utilities is not a deductible tax. Fife v. Commissioner, 73 T.C. 621 (1980).

V

Vacant rental property. A taxpayer who holds property for rental purposes may be able to deduct the ordinary and necessary expenses (including depreciation) of managing, conserving, or maintaining the property while the property is vacant, although no deduction is allowed for the loss of rental income for the period the property is vacant. Reg. Section 1.212-1(b).

Vacation home. If a taxpayer uses a dwelling unit as a residence, the deductions allocable to the rental use of the residence generally are limited to the gross income generated by the unit, reduced by the deductions allocable to rental use that are allowable whether or not the unit is rented such as certain interest and taxes. Code Section 280A(c)(5). Where the dwelling unit is used as a residence and is rented for less than 15 days during the taxable year, no deductions attributable to rental use are allowed, and no rental income must be recognized. Code Section 280A(g).

Vacation time. The value of lost vacation time is not deductible. IRS Pub. 529, Miscellaneous Deductions.

Vacuum cleaner. The cost of a vacuum cleaner is a non-deductible personal expense, rather than a medical expense, even when it is purchased by a taxpayer with an allergy to household dust. Rev. Rul. 76-80, 1976-1 C.B. 71.

Van. The cost of converting a van to transport the taxpayer's son, who suffered from scoliosis, and installing special equipment, is deductible as a medical expense. However, depreciation on the van cannot be claimed as a medical expense. Pfersching v. Commissioner, T.C. Memo. 1983-341.

Vandalism. Losses due to vandalism may be deductible as theft or casualty losses. Davis v. Commissioner, 34 T.C. 586 (1960), acq., 1963-2 C.B. 4.

Vasectomy. The cost of a legal vasectomy is deductible as a medical expense. Rev. Rul. 73-201, 1973-1 C.B. 140. Surgery to reverse a vasectomy also is deductible as a medical expense. IRS Pub. 502, Medical and Dental Expenses.

Veterans' organizations. Contributions to a war veterans' organization are deductible if the post is organized in the United Statesand no part of its earnings inures to the benefit of any private shareholder or individual. Code Section 170(c)(3).

Vitamins. Nutritional or herbal supplements, vitamins, and natural medicines are not deductible as medical expenses unless they can be obtained legally only with a doctor's prescription. Neil v. Commissioner, T.C. Memo. 1982-562.

Volcanoes. Losses due to volcanic eruptions may be deductible as casualty losses. Weyerhaeuser Co. v. United States, 92 F.3d 1148 (Fed. Cir. 1996), cert. denied, 519 U.S. 1091 (1997).

Volunteer expenses. Unreimbursed expenditures made incident and solely attributable to the rendition of volunteer services may be deductible as charitable contributions. Reg. Section 1.170A-1(g).

Voluntary unemployment benefit fund contributions. Generally, no deduction is allowed for contributions to a voluntary unemployment benefit fund. Contributions are deductible as state taxes if state law requires the taxpayer to make them to a state unemployment fund that covers the taxpayer for the loss of wages due to unemployment caused by business conditions. Rev. Rul. 81-194, 1981-2 C.B. 54.

Volunteer fire department. Donations by a taxpayer to a nonprofit volunteer fire companies are deductible as charitable contributions if the company promotes the common good and general welfare of the community through its primary activity of providing fire and ambulance service, even if the company serves the area in which the taxpayer resides. Rev. Rul. 74-361, 1974-2 C.B. 159; Rev. Rul. 80-77, 1980-1 C.B. 56.

Volunteer Income Tax Assistance (VITA). Out-of-pocket expenses incurred while participating in the VITA program are deductible charitable contributions. Rev. Rul. 80-45, 1980-1 C. B. 54.

W

Wages not received. The value of wages not received due to the taxpayer's inability to work for health reasons is not deductible as a medical expense. Shepherd v. Commissioner, T.C. Memo. 1976-48. Similarly, no deduction is available for the loss of amounts that could have been earned had the taxpayer been employed. Crossland v. Commissioner, T.C. Memo. 1976-59.

War veterans groups. Donations to a war veterans group may be deductible as charitable contributions if the group is operated for social welfare purposes. Code Section 170(c)(3). Donations to an endowment fund created by a war veteran's group for the care of disabled veterans are also deductible. Rev. Rul. 73-14, 1973-1 C.B. 117.

Watch. The cost of a wristwatch is a non-deductible personal expense, even if the taxpayer is required to know the correct time in order to perform the duties of his job. Rev. Rul. 82-168, 1982-2 C.B. 56.

Water. Amounts paid for water and other utilities in the taxpayer's home are non-deductible personal expenses. Reg. Section 1.262-1(b)(3).

Water fluoridation device. The installation costs and monthly rent for a water fluoridation device to fluoridate the taxpayer's home water supply on the advice of a dentist are deductible as medical expenses. Rev. Rul. 64-267, 1964-2 C.B. 69.

Water heater. Although the deterioration and damage to a water heater that bursts is due to progressive deterioration and thus not deductible, the consequent water damage to rugs and drapes caused by the bursting of the water heater does qualify as a deductible casualty loss. Rev. Rul. 70-91, 1970-1 C.B. 37.

Weakened building. The steady weakening of a building due to normal wind and weather conditions constitutes progressive deterioration and thus does not give rise to a deductible casualty loss. Matheson v. Commissioner, 54 F.2d 537 (2d Cir. 1931).

Wedding expenses. Although a contribution to a church is deductible as a charitable contribution, a payment made to a church for use of a recreation hall for a wedding is a non-deductible personal expense. Summers v. Commissioner, T.C. Memo. 1974-162.

Weight loss program. The cost of a weight loss program prescribed by a physician to treat a specific disease or diseases, including obesity, is deductible as a medical expense. Rev. Rul. 2002-19, 2002-17 I.R.B. 778.

CAUTION: No deduction is allowed if the taxpayer is not suffering from any specific disease or ailment and participates in the weight loss program merely to improve general health and appearance. Rev. Rul. 79-151, 1979-1 C.B. 307.

Whale watching. Because no charitable contribution deduction for travel expenses incurred while away from home performing services for a charitable organization is permitted if there is a significant element of personal pleasure, recreation, or vacation in the travel, a taxpayer who sails from one island to another counting whales and other forms of marine life as part of a project sponsored by a charitable organization generally cannot deduct his expenses. Notice 87-23, 1987-1 C.B. 467.

Wheelchair. A wheelchair or autoette, either manually operated or self-propelled, is deductible as a medical expense if purchased to alleviate sickness or disability and not just to provide transportation between home and work. Rev. Rul. 67-76, 1967-1 C.B. 70; Rev. Rul. 58-8, 1958-1 C.B. 154.

Wheelchair ramps. The cost of constructing entrance or exit ramps for the taxpayer's home in order to accommodate a disability of the taxpayer or her spouse or dependents is a deductible medical expense. Rev. Rul. 87-106, 1987-2 C.B. 67.

Widening doorways. The cost of widening doorways in the taxpayer's home in order to accommodate a disability of the taxpayer or his spouse or dependents is a deductible medical expense. Rev. Rul. 87-106, 1987-2 C.B. 67.

Wig. A medical expense deduction may be available for the cost and maintenance of a wig purchased on a doctor's advice that the wig was essential to the mental health of a patient who lost all her hair as a result of disease. Rev. Rul. 62-189, 1962-2 C.B. 88.

Wind and weather. The steady weakening of a building due to normal wind and weather conditions constitutes progressive deterioration and thus does not give rise to a deductible casualty loss. Matheson v. Commissioner, 54 F.2d 537 (2d Cir. 1931). However, sudden damage caused by a windstorm is deductible as a casualty loss. Draper v. Commissioner, 32 T.C. 545 (1959).

Work clothes. Although the cost of clothing generally is a non-deductible personal expense, the cost and upkeep of work clothes and uniforms is deductible as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer must wear them as a condition of employment and the clothes are not suitable for everyday wear. Pevsner v. Commissioner, 628 F.2d 467 (5th Cir. 1980), reh'gdenied, 636 F.2d 1106 (5th Cir. 1981).

Work-related educational expenses. A taxpayer who is working may be able to deduct as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions certain work-related educational expenses, if the education either is required by the taxpayer's employer or the law to keep the taxpayer's present salary, status, or job, or if the education maintains or improves skills needed in the taxpayer's work. Reg. Section 1.162-5(a).

Worthless securities. If any security that is a capital asset becomes worthless during the year, the resulting loss is deductible as a capital loss. Code Section 165(g). A taxpayer other than a bank cannot claim a worthless securities deduction due to the worthlessness of any debt owed by a political party, while a bank can claim the deduction only if the worthless security was acquired by the bank in accordance with its usual commercial practices. Reg. Section 1.271-1(a).

Wristwatch. The cost of a wristwatch is a non-deductible personal expense, even if the taxpayer is required to know the correct time in order to perform the duties of his job. Rev. Rul. 82-168, 1982-2 C.B. 56.

X

X-rays. Deductible medical expenses include amounts paid for X-rays that the taxpayer has taken for medical reasons. Reg. Section 1.213-1(e)(1)(ii).