Sarah Lawsky (Northwestern; Google Scholar) & Leandra Lederman (Indiana-Maurer; Google Scholar) present Deductions’ Limits at Missouri-Columbia today as part of its Tax Policy Colloquium hosted by David Gamage:

U.S. federal income tax law allows individuals to take various deductions in computing their tax liabilities. Many deductions are limited only by overall income. However, the law also limits the amount of certain deductions in additional ways. This Article first categorizes deductions along two axes: (1) the type of deduction—expense or loss—and (2) the deduction’s context: business, investment, or personal. It then develops an original typology of “tools” that the tax law uses to limit deductions. The Article also identifies patterns in how these tools apply—including with respect to whether a capped deduction is subject to carryover to another year. These patterns reveal three outliers: statutes that deviate from the Internal Revenue Code’s general patterns. 

The Article argues that the first one, relating to professional gamblers, violates tax-policy norms and should be reformed. The second one, involving capital losses, could be simplified by use of an additional tool the Article suggests. The Article argues that the third outlier, charitable contributions, sheds light on the categorization of certain individual deductions as “personal.”

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