IRC Section 262: Personal Expenses, Overrides, and Mixed Use

Internal Revenue Code Section 262 bars you from deducting personal, living, and family expenses, which means the default treatment of every dollar you spend on yourself or your household is nondeductible. The rule flips the presumption: an expense is personal unless another section of the code expressly authorizes a deduction for it. If you cannot point to that specific authorization, the expense stays on your side of the ledger, no matter how necessary or work-adjacent it feels.¹

What the Rule Actually Blocks

Section 262 is short. It denies a deduction for personal, living, or family expenses unless the code “expressly” provides one elsewhere. There is no balancing test and no factor analysis. Treasury Regulations reinforce the default by listing categories of spending that fall on the personal side, from homeowner’s insurance to the groceries in your refrigerator.²

The practical consequence is that the burden of proof sits with you. The IRS does not have to show that an expense was personal. You have to show it was not, with documentation and a statutory hook. One narrow provision baked into the statute itself: Section 262(b) treats the cost of basic local telephone service for the first phone line at your home as personal, regardless of how much business you conduct on it.¹

Everyday Costs That Are Always Personal

Housing and Insurance

Rent on a personal residence, homeowner’s insurance premiums, and life insurance premiums for policies benefiting your family are personal costs under the regulations. Even when housing costs spike because you relocated for a job, the expense stays personal.²

Food and Clothing

Daily necessities remain personal even when your job demands a polished appearance. Clothing is deductible only when your employer requires it and the garment is not suitable for everyday wear. Hard hats, lab coats, and fire-resistant coveralls qualify. Business suits, scrubs worn casually outside the hospital, and fashionable work attire do not. The test is whether people generally accept the item as ordinary street wear, not whether you personally would choose to wear it outside the office.³

Commuting

Getting from home to your regular workplace is personal, regardless of distance or mode. The IRS treats your choice of where to live as personal, so the daily trip that follows is personal too.² One exception: travel to a temporary work location outside your metropolitan area is deductible if the assignment is realistically expected to last one year or less. Travel to temporary sites inside your metro area stays nondeductible.⁴

Childcare

Paying someone to watch your children so you can work is a personal expense. The code offers no deduction, but Section 21 offers something different: the child and dependent care credit, which reduces your tax bill directly. You need earned income, and the care must be for a child under 13 or a dependent incapable of self-care.⁵

Personal Legal Fees

Legal fees for divorce, custody, personal injury defense, will preparation, and property settlements are nondeductible. Fees connected to a trade or business reported on Schedule C stay deductible on that schedule, and attorney fees for certain employment discrimination or whistleblower claims can be deducted as an adjustment to income. Fees for managing investments, tax preparation, or resolving tax disputes were once deductible as miscellaneous itemized deductions subject to a 2% AGI floor; that category has been permanently eliminated.⁶

The Code Sections That Override the Default

Section 262’s ban yields when another code section expressly authorizes a deduction. The exceptions are narrow, carry their own eligibility rules, and only reduce your tax bill if you itemize.

Medical and Dental Expenses

Section 213 lets you deduct unreimbursed medical and dental expenses that exceed 7.5% of your adjusted gross income. If your AGI is $80,000, only qualifying costs above $6,000 count. The threshold limits the deduction to extraordinary healthcare costs, not routine checkups and prescriptions.⁷

Mortgage Interest

Section 163 allows a deduction for interest paid on home acquisition debt for a primary or secondary residence. For mortgages taken out after December 15, 2017, the deduction applies to the first $750,000 of debt ($375,000 if married filing separately). Older mortgages retain the previous $1 million ceiling.⁸

State and Local Taxes

Section 164 permits deductions for state and local property, income, and sales taxes. The combined SALT deduction is capped. For 2026, the cap is $40,000 for taxpayers with modified adjusted gross income below $500,000, phasing down for higher earners. The cap applies per return, so married couples filing jointly share it.⁹¹⁰

The Standard Deduction Reality

These exceptions only help if your total itemizable expenses beat the standard deduction. For 2026, the standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.⁹ A married couple with $18,000 in mortgage interest, $8,000 in property taxes, and $3,000 in charitable contributions has $29,000 in itemizable expenses, below the $32,200 floor. For that couple, the Section 262 exceptions are academic.

Mixed-Use Expenses and How to Split Them

Some costs serve both business and personal purposes. The IRS allows allocation based on documented usage, but the documentation is the whole game.

Cell Phones

Section 262(b) makes the first phone line to your home entirely personal. Cell phones are treated differently: you split usage between business and personal calls based on actual records. When an employer provides a phone primarily for business, the IRS treats personal use as a tax-free fringe benefit and does not require call-by-call tracking.¹¹

Home Office

The home office deduction sits under Section 280A, which requires that a portion of your home be used exclusively and on a regular basis as your principal place of business, as a place to meet clients, or (for a detached structure) in connection with your business.¹² The “exclusively” requirement is strict. A spare bedroom that doubles as a guest room fails the test, and the entire deduction disappears.

The simplified method allows $5 per square foot of dedicated office space, up to 300 square feet, for a $1,500 maximum. The regular method calculates actual expenses proportionally with more recordkeeping.¹³ This deduction is available to self-employed taxpayers, not to W-2 employees working from home.

Travel

On a mixed trip, the primary purpose controls the transportation costs. If the trip is primarily for business, you can deduct round-trip airfare or mileage even if you add vacation days. If the trip is primarily personal, transportation is entirely nondeductible, though business expenses incurred at the destination remain deductible. Scheduling a couple of lectures during a resort vacation does not convert the trip into business travel.⁴

Meals and Entertainment

Entertainment is fully nondeductible under Section 274, including dues for social, athletic, or sporting clubs. Business meals get better treatment: 50% deductible if the meal is not lavish and either you or your employee is present.¹⁴ Taking a client to a basketball game is nondeductible. Taking the same client to dinner afterward to discuss a contract is half deductible.

Education Costs People Misread

Education is personal when it qualifies you for a new career, but can be deductible when it maintains or improves skills you already use. Work-related education is deductible only if it maintains or improves skills needed in your current job, or your employer or the law requires it to keep your current position. Even if the education passes one of those tests, it becomes personal if it qualifies you for a new trade or business or satisfies the minimum educational requirements for your current one.¹⁵

A tax accountant taking continuing education to maintain a CPA license: deductible. The same accountant going to law school: personal, because law school qualifies them for a new profession. Education taken during a temporary absence from work can qualify if you return to the same type of work within a year. For 2026, this deduction is available to self-employed individuals and a few specific groups such as Armed Forces reservists, qualified performing artists, and fee-basis government officials. Regular W-2 employees cannot deduct unreimbursed education costs.¹⁵

Health and Wellness Costs People Misread

The medical expense deduction is narrower than most people think. An expense must primarily treat, alleviate, or prevent a specific physical or mental condition. Costs that are merely beneficial to general health are personal, even with a doctor’s recommendation.¹⁶

Gym memberships show the line. A membership on a doctor’s prescribed treatment plan for a diagnosed condition like obesity or heart disease can qualify. The same membership to stay in shape does not, even if your doctor encourages exercise. Swimming lessons, dance classes, and other general fitness activities are personal regardless of medical advice. Nutritional supplements follow the same rule: deductible only when a medical practitioner recommends them to treat a specific diagnosed condition.¹⁶

Records That Hold Up

Because the burden sits with you, documentation decides whether a deduction survives. For travel, gifts, and vehicle expenses, the IRS expects you to substantiate five elements: the amount, the date, the place or destination, the business purpose, and (for gifts) the business relationship with the recipient. Estimates do not count. You need a written record made at or near the time of the expense, such as a log, diary, or expense report.⁴

Receipts and cancelled checks are generally required, though the IRS makes an exception for non-lodging expenses under $75 and for transportation costs where receipts are not readily available. Digital storage is acceptable if your system is legible, accessible, and maintained with documented security controls.

For dual-use expenses, records must show the split. A cell phone log should distinguish business and personal calls. A home office claim needs the square footage relative to the house and evidence that the space is used exclusively for business. Travel records should reflect the business activities conducted each day. This is where most deductions fall apart in an audit: a legitimate business expense the taxpayer could not properly allocate.

What Claiming a Personal Expense Costs You

Improperly deducting a personal expense is not just a question of paying back tax. Section 6662 imposes a 20% accuracy-related penalty on any resulting underpayment.¹⁷ Deduct $10,000 in personal expenses at a 24% marginal rate and the additional tax is $2,400, with a $480 penalty on top.

The penalty escalates when the understatement is “substantial.” For individuals, that threshold is the greater of 10% of the tax that should have been shown on the return or $5,000. Taxpayers claiming the qualified business income deduction face a lower 5% trigger. A few aggressively deducted personal expenses can push you over.

The most reliable defense is reasonable cause and good faith: an honest effort to comply. Thorough records, reliance on professional tax advice, and disclosing borderline positions on the return all help. Claiming ignorance of the Section 262 default does not, because the statute has been on the books since the modern tax code was enacted.

1
Office of the Law Revision Counsel. 26 USC 262 – Personal, Living, and Family Expenses
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eCFR. 26 CFR 1.262-1 – Personal, Living, and Family Expenses
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Internal Revenue Service. FSLG Directive – Tax Treatment of Uniforms Issued to Government Employees
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Internal Revenue Service. Publication 463, Travel, Gift, and Car Expenses
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Internal Revenue Service. Child and Dependent Care Credit Information
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Internal Revenue Service. Publication 529, Miscellaneous Deductions
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Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses
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Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
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Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One Big Beautiful Bill
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Office of the Law Revision Counsel. 26 USC 164 – Taxes
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Internal Revenue Service. Notice 2011-72 – Tax Treatment of Employer-Provided Cell Phones
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Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home
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Internal Revenue Service. Simplified Option for Home Office Deduction
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Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses
15
Internal Revenue Service. Topic No. 513, Work-Related Education Expenses
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Internal Revenue Service. Frequently Asked Questions About Medical Expenses Related to Nutrition, Wellness and General Health
17
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments