The Tax Cuts and Jobs Act of 2017 changed the tax deductibility of unreimbursed employee business expenses for most individuals. Specifically, the deductibility of unreimbursed employee expenses on Form 2106 is now limited to Armed Forces reservists, qualified performing artists, and a few other groups of taxpayers.

Assuming that lenders won’t often receive a qualifying Form 2106 for tax years 2018 and beyond, what are the cash flow implications of this change in the tax law?

Since unreimbursed employee expenses are a cash outflow, we deduct them as an “Other Adjustment to Income”. If your borrower has a Form 2106, you can use the figures reported on that form, otherwise you will have to ask your borrower if they have kept track of unreimbursed employee expenses.

If your borrower took a deduction for unreimbursed employee expenses in tax years 2017 or prior, your borrower likely still incurred this cash outflow after 2017. However, you probably will not see a deduction for this on the tax return after the tax law change, so you should remember to ask your borrower about unreimbursed employee expenses for tax years 2018 and beyond.

Keep in mind that since these expenses are not deductible for most individuals, they may not maintain accurate records of such expenditures, so proceed with caution.