Is federal employee service credit buyback expense deductible?

[mlaplante]

I'm a federal government employee that did a military and service credit buyback last year. Are these expenses deductible?

[IsabellaG · Accepted solution]

No, there is no deduction for purchasing the buyback service credit in the year that you pay for them. Instead, when you retire, you will not have to pay income tax on the portion of your retirement pay that represents the amount you paid in,because that income has already been taxed.

https://www.irs.gov/pub/irs-pdf/p721.pdf

[Pd1010]

What if the retirement allowance is taxable because the regular contributions were non taxed? How can you determine the part of the retirement allowance that is tax free due to the buyback purchase?

[RobertB4444]

@Pd1010  In that case the 1099-R that you receive should reflect the amount that is taxable by showing it as less than the total that you received for the year.  

If, however, the 1099-R has the "Taxable Amount Not Determined" box checked and the amounts are equal then you may have to figure out the percentage for yourself.  The amount of your total contributions that were already taxed should be reflected in box 9b of your 1099-R.

Here are the IRS instructions for calculating the taxable portion.

[Pd1010]

Thank you for your help. It answered my question