U.S. Code » Title 26 » Subtitle Subtitle A— Income Taxes › Chapter CHAPTER 1— NORMAL TAXES AND SURTAXES › Subchapter Subchapter B— Computation of Taxable Income › Part PART I— DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE INCOME, ETC.

26 U.S.C. § 67

2-percent floor on miscellaneous itemized deductions

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(a) General rule

In the case of an individual, the miscellaneous itemized deductions for any taxable year shall be allowed only to the extent that the aggregate of such deductions exceeds 2 percent of adjusted gross income.

(b) Miscellaneous itemized deductionsFor purposes of this section, the term “miscellaneous itemized deductions” means the itemized deductions other than—(1) the deduction under section 163 (relating to interest),(2) the deduction under section 164 (relating to taxes),(3) the deduction under section 165(a) for casualty or theft losses described in paragraph (2) or (3) of section 165(c) or for losses described in section 165(d),(4) the deductions under section 170 (relating to charitable, etc., contributions and gifts) and section 642(c) (relating to deduction for amounts paid or permanently set aside for a charitable purpose),(5) the deduction under section 213 (relating to medical, dental, etc., expenses),(6) any deduction allowable for impairment-related work expenses,(7) the deduction under section 691(c) (relating to deduction for estate tax in case of income in respect of the decedent),(8) any deduction allowable in connection with personal property used in a short sale,(9) the deduction under section 1341 (relating to computation of tax where taxpayer restores substantial amount held under claim of right),(10) the deduction under section 72(b)(3) (relating to deduction where annuity payments cease before investment recovered),(11) the deduction under section 171 (relating to deduction for amortizable bond premium),(12) the deduction under section 216 (relating to deductions in connection with cooperative housing corporations), and(13) the deductions allowed by section 162 for educator expenses (as defined in subsection (g)).(c) Disallowance of indirect deduction through pass-thru entity(1) In general

The Secretary shall prescribe regulations which prohibit the indirect deduction through pass-thru entities of amounts which are not allowable as a deduction if paid or incurred directly by an individual and which contain such reporting requirements as may be necessary to carry out the purposes of this subsection.

(2) Treatment of publicly offered regulated investment companies(A) In general

Paragraph (1) shall not apply with respect to any publicly offered regulated investment company.

(B) Publicly offered regulated investment companiesFor purposes of this subsection—(i) In generalThe term “publicly offered regulated investment company” means a regulated investment company the shares of which are—(I) continuously offered pursuant to a public offering (within the meaning of section 4 of the Securities Act of 1933, as amended (15 U.S.C. 77a to 77aa)),(II) regularly traded on an established securities market, or(III) held by or for no fewer than 500 persons at all times during the taxable year.(ii) Secretary may reduce 500 person requirement

The Secretary may by regulation decrease the minimum shareholder requirement of clause (i)(III) in the case of regulated investment companies which experience a loss of shareholders through net redemptions of their shares.

(3) Treatment of certain other entitiesParagraph (1) shall not apply—(A) with respect to cooperatives and real estate investment trusts, and(B) except as provided in regulations, with respect to estates and trusts.(d) Impairment-related work expensesFor purposes of this section, the term “impairment-related work expenses” means expenses—(1) of a handicapped individual (as defined in section 190(b)(3)) for attendant care services at the individual’s place of employment and other expenses in connection with such place of employment which are necessary for such individual to be able to work, and(2) with respect to which a deduction is allowable under section 162 (determined without regard to this section).(e) Determination of adjusted gross income in case of estates and trustsFor purposes of this section, the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that—(1) the deductions for costs which are paid or incurred in connection with the administration of the estate or trust and which would not have been incurred if the property were not held in such trust or estate, and(2) the deductions allowable under sections 642(b), 651, and 661,shall be treated as allowable in arriving at adjusted gross income. Under regulations, appropriate adjustments shall be made in the application of part I of subchapter J of this chapter to take into account the provisions of this section.(f) Coordination with other limitation

This section shall be applied before the application of the dollar limitation of the second sentence of section 162(a) (relating to trade or business expenses).

(g) Educator expensesFor purposes of subsection (b)(13), the term “educator expenses” means expenses of a type which would be described in section 62(a)(2)(D) if—(1) such section were applied—(A) without regard to the dollar limitation,(B) without regard to “(other than nonathletic supplies for courses of instruction in health or physical education)” in clause (ii) thereof, and(C) by substituting “as part of instructional activity” for “in the classroom” in clause (ii) thereof, and(2) section 62(d)(1)(A) were applied by inserting “, interscholastic sports administrator or coach,” after “counselor”(h) Suspension for taxable years beginning after 2017

Notwithstanding subsection (a), no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017.

(Added Pub. L. 99–514, title I, § 132(a), Oct. 22, 1986, 100 Stat. 2113; amended Pub. L. 100–647, title I, § 1001(f), title IV, § 4011(a), Nov. 10, 1988, 102 Stat. 3351, 3655; Pub. L. 101–239, title VII, § 7814(f), Dec. 19, 1989, 103 Stat. 2414; Pub. L. 103–66, title XIII, § 13213(c)(2), Aug. 10, 1993, 107 Stat. 474; Pub. L. 105–277, div. J, title IV, § 4004(b)(1), Oct. 21, 1998, 112 Stat. 2681–910; Pub. L. 106–554, § 1(a)(7) [title III, § 319(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–646; Pub. L. 115–97, title I, § 11045(a), Dec. 22, 2017, 131 Stat. 2088; Pub. L. 119–21, title VII, § 70110(a), (b), July 4, 2025, 139 Stat. 164.)Editorial NotesReferences in Text

Section 4 of the Securities Act of 1933, referred to in subsec. (c)(2)(B)(i)(I), is classified to section 77d of Title 15, Commerce and Trade.

Amendments

2025—Subsec. (b)(13). Pub. L. 119–21, § 70110(b)(1), added par. (13).

Subsec. (g). Pub. L. 119–21, § 70110(b)(2), added subsec. (g). Former subsec. (g) redesignated (h).

Pub. L. 119–21, § 70110(a), substituted “beginning after 2017” for “2018 through 2025” in heading and struck out “, and before January 1, 2026” after “December 31, 2017” in text.

Subsec. (h). Pub. L. 119–21, § 70110(b)(2), redesignated subsec. (g) as (h).

2017—Subsec. (g). Pub. L. 115–97 added subsec. (g).

2000—Subsec. (f). Pub. L. 106–554 substituted “the second sentence” for “the last sentence”.

1998—Subsec. (b)(3). Pub. L. 105–277 substituted “for casualty or theft losses described in paragraph (2) or (3) of section 165(c) or for losses described in section 165(d)” for “for losses described in subsection (c)(3) or (d) of section 165”.

1993—Subsec. (b)(6) to (13). Pub. L. 103–66 redesignated pars. (7) to (13) as (6) to (12), respectively, and struck out former par. (6) which read as follows: “the deduction under section 217 (relating to moving expenses),”.

1989—Subsec. (c)(4). Pub. L. 101–239 struck out par. (4) which read as follows: “Termination.—This subsection shall not apply to any taxable year beginning after December 31, 1989.”

1988—Subsec. (b)(4). Pub. L. 100–647, § 1001(f)(2), substituted “deductions” for “deduction” and inserted before comma at end “and section 642(c) (relating to deduction for amounts paid or permanently set aside for a charitable purpose)”.

Subsec. (c). Pub. L. 100–647, § 4011(a), amended subsec. (c) generally. Prior to amendment subsec. (c) read as follows: “The Secretary shall prescribe regulations which prohibit the indirect deduction through pass-thru entities of amounts which are not allowable as a deduction if paid or incurred directly by an individual and which contain such reporting requirements as may be necessary to carry out the purposes of this subsection. The preceding sentence shall not apply—

“(1) with respect to cooperatives and real estate investment trusts, and

“(2) except as provided in regulations, with respect to estates and trusts.”

Pub. L. 100–647, § 1001(f)(4), amended last sentence generally. Prior to amendment, last sentence read as follows: “The preceding sentence shall not apply with respect to estates, trusts, cooperatives, and real estate investment trusts.”

Subsec. (e). Pub. L. 100–647, § 1001(f)(3), amended subsec. (e) generally. Prior to amendment, subsec. (e) read as follows: “For purposes of this section, the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that the deductions for costs which are paid or incurred in connection with the administration of the estate or trust and would not have been incurred if the property were not held in such trust or estate shall be treated as allowable in arriving at adjusted gross income.”

Subsec. (f). Pub. L. 100–647, § 1001(f)(1), added subsec. (f).

Statutory Notes and Related SubsidiariesEffective Date of 2025 Amendment

Pub. L. 119–21, title VII, § 70110(c), July 4, 2025, 139 Stat. 164, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2025.”

Effective Date of 2017 Amendment

Pub. L. 115–97, title I, § 11045(b), Dec. 22, 2017, 131 Stat. 2088, provided that: “The amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.”

Effective Date of 1998 Amendment

Pub. L. 105–277, div. J, title IV, § 4004(c)(2), Oct. 21, 1998, 112 Stat. 2681–911, provided that: “The amendment made by subsection (b)(1) [amending this section] shall apply to taxable years beginning after December 31, 1986.”

Effective Date of 1993 Amendment

Amendment by Pub. L. 103–66 applicable to expenses incurred after Dec. 31, 1993, see section 13213(e) of Pub. L. 103–66 set out as a note under section 62 of this title.

Effective Date of 1989 Amendment

Amendment by Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title.

Effective Date of 1988 Amendment

Amendment by section 1001(f) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Pub. L. 100–647, title IV, § 4011(b), Nov. 10, 1988, 102 Stat. 3656, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1987.”

Effective Date

Section applicable to taxable years beginning after Dec. 31, 1986, see section 151(a) of Pub. L. 99–514, set out as an Effective Date of 1986 Amendment note under section 1 of this title.

1-Year Delay in Treatment of Publicly Offered Regulated Investment Companies Under 2-Percent Floor

Pub. L. 100–203, title X, § 10104(a), Dec. 22, 1987, 101 Stat. 1330–386, provided that:“(1)General rule.—Section 67(c) of the Internal Revenue Code of 1986 to the extent it relates to indirect deductions through a publicly offered regulated investment company shall apply only to taxable years beginning after December 31, 1987.“(2)Publicly offered regulated investment com­pany defined.—For purposes of this subsection—“(A)In general.—The term ‘publicly offered regulated investment company’ means a regulated investment company the shares of which are—“(i) continuously offered pursuant to a public offering (within the meaning of section 4 of the Securities Act of 1933, as amended (15 U.S.C. 77a to 77aa) [15 U.S.C. 77d]),“(ii) regularly traded on an established securities market, or“(iii) held by or for no fewer than 500 persons at all times during the taxable year.“(B)Secretary may reduce 500 person requirement.—The Secretary of the Treasury or his delegate may by regulation decrease the minimum shareholder requirement of subparagraph (A)(iii) in the case of regulated investment companies which experience a loss of shareholders through net redemptions of their shares.”

Notes of Decisions
Cited in 29 cases (1 in the last 5 years), 1992–2025 · leading case: Charles Reynolds and Beatrice Reynolds v. Commissioner of Internal Revenue
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Charles Reynolds and Beatrice Reynolds v. Commissioner of Internal Revenue (2002) ca7 · cites it 2× “In a subsequent audit, the IRS disallowed the business deduction of the legal expenses, ruling that they should instead be categorized as itemized personal expenses on Schedule A and thus deductible to the extent they exceeded the 2% “floor” limitation of 26 U.S.C. § 67 (a). In…”
William L. Rudkin Testamentary Trust v. Commissioner (2006) ca2 · cites it 5× “The question presented on this appeal is whether investment-advice fees incurred by a trust are fully deductible in calculating adjusted gross income for purposes of *151 the Internal Revenue Code (“IRC”) under 26 U.S.C. § 67 (e)(1) (2000), or whether these fees are deductible…”
Eldon R. Kenseth and Susan M. Kenseth v. Commissioner of Internal Revenue (2001) ca7 “26 U.S.C. §§ 67 , 68. In an effort to avoid these tax bites, Kenseth points out that under Wisconsin law (as under that of every other state, as far as we know), which is the law that governed his contract with the law firm, the firm had a lien on the proceeds of any settlement…”
Franklin P. Coady Nona Coady v. Commissioner of Internal Revenue (2000) ca9 · cites it 2× “Pursuant to 26 U.S.C. § 67 (b), all itemized deductions not falling within the enumerated list in that subsection are called "miscellaneous itemized deductions.”
Knight v. Commissioner (2008) scotus “The Trust argued that such fees are accordingly unique to trusts and therefore fully deductible under 26 U. S. C. § 67 (e)(1). The Tax Court rejected this argument, holding that § 67(e)(1) allows full deductibility only for expenses that are not commonly incurred outside the…”
Joseph M. McKenney v. United States (2020) ca11 “See 26 U.S.C. § 67 . The Tax Code allows deductions for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.”
Scott v. United States (2003) ca4 · cites it 2× “§ 67(a) (codified at 26 U.S.C. § 67 (a)). 2 . The Internal Revenue Code is codified in Title 26 of the United States Code, and I.”
William J. O'neill, Jr. Irrevocable Trust, Sheldon M. Sager, Co-Trustee v. Commissioner of Internal Revenue (1993) ca6 · cites it 2× “26 U.S.C. § 67 (a). As taxable income of a trust is computed in the same manner, certain expenditures would qualify as deductions subject to the two percent floor.”
Srivastava v. Commissioner (2000) ca5 “” 26 U.S.C. § 67 (a). Section 68 of the Internal Revenue Code limits the total amount of itemized deductions allowed.”
Benci-Woodward v. Commissioner (2000) ca9 · cites it 3× “The starting point is the interpretation of 26 U.S.C. § 67 , which imposes a 2-percent floor on miscellaneous itemized deductions of individuals.”
Steven J. Namyst Terry L. Namyst v. Commissioner of Internal Revenue (2006) ca8 “…§ 162 business deduction is subject to expenses incurred above two percent of the taxpayer’s adjusted gross income. 26 U.S.C. § 67 (a).”
Purdey v. United States (1997) uscfc · cites it 3× “See 26 U.S.C. § 67 (b). Deductions permitted pursuant to § 183(b)(2) are not listed in § 67(b).”
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