What is the 2% floor?
After you have calculated all of your miscellaneous expenses, you have to add them together. If that total is less than 2% of your adjusted gross income, you cannot deduct any of your miscellaneous expenses. If that total is greater than 2% of your adjusted gross income, you can deduct any amount in excess of that 2%. For example, if your adjusted gross income was $50,000, you can deduct any miscellaneous expenses in excess of $1,000 (which is 2% of $50,000).
There are certain miscellaneous expenses which are excluded from this 2% floor (meaning the total value of the expense is generally deductible). Principally among these are casualty and theft losses from income producing property, gambling losses and estate tax related to income.
There are three other things worth noting about this 2% floor:
1. It is separate and distinct from the 2% reduction that applies to individuals whose adjusted gross income is over a certain amount.
2. It does not generally apply to people who are self-employed.
3. While miscellaneous expenses over 2% of your adjusted gross income are deductible, they still count towards your income when determining whether you are subject to the alternative minimum tax (the AMT).