What Investment Expenses Are Deductible on Your Taxes?

For the 2026 tax year, deductible investment expenses fall into five categories: interest on money borrowed to buy taxable investments, capital losses from selling investments at a loss, operating costs on rental property, foreign taxes withheld on investment income, and state and local taxes paid on investment earnings. Everything else that investors used to write off — advisory fees, safe deposit boxes, tax prep costs tied to investments, subscriptions, and similar portfolio management expenses — is permanently off the table.

What Isn’t Deductible Anymore

Before 2018, portfolio management costs were deductible as miscellaneous itemized deductions to the extent they exceeded 2% of adjusted gross income. The Tax Cuts and Jobs Act suspended that whole category for tax years 2018 through 2025, and many taxpayers assumed the deductions would come back after 2025. They didn’t. The One Big Beautiful Bill Act, signed in mid-2025, struck the expiration date and made the elimination permanent.¹

Gone for good:

Investment advisory and management fees, whether flat or a percentage of assets.
Safe deposit box rental, even when used only for investment documents.
The portion of tax preparation fees attributable to investment income.
Financial publications, newsletters, research services, and investment software.
Legal and accounting fees for producing or collecting taxable investment income.

If a financial advisor charges you 1% of assets under management, the entire fee reduces your returns without any tax offset.

Investment Interest Expense

Interest on money you borrow to buy taxable investments is deductible. The most common example is margin interest on a brokerage account, but the rule covers any loan whose proceeds go into property held for investment. The deduction is capped at your net investment income for the year.²

Net investment income includes interest, non-qualified dividends, annuities, royalties, and short-term capital gains. Qualified dividends and long-term capital gains are excluded by default because they get preferential rates. You can elect to include them, but they then lose that preferential rate and get taxed as ordinary income. The election only pays off when you have large interest expenses and relatively small amounts of qualified dividends or long-term gains.²

Any investment interest that exceeds your net investment income carries forward automatically to the next year, with no time limit.² You calculate the deduction on Form 4952 and carry the result to the interest expense line of Schedule A.³ Keep clear records tying the loan to specific investment purchases. If the IRS can’t trace the borrowed funds to taxable investments, it reclassifies the interest as nondeductible personal interest.

Capital Losses

When you sell an investment for less than you paid, the loss has real tax value. Losses first offset gains of the same character: short-term losses cancel short-term gains, long-term losses cancel long-term gains. Any net loss remaining in one category then offsets any net gain in the other.⁴

If total losses still exceed total gains, you can deduct up to $3,000 of that excess against ordinary income like wages. Married taxpayers filing separately get $1,500 each.⁵ That $3,000 figure hasn’t been adjusted for inflation since 1978.

Losses above the annual cap carry forward, keeping their short-term or long-term character, and can be used the same way in future years until fully absorbed.⁶ Report each sale on Form 8949 with the description, purchase date, sale date, cost basis, and proceeds. Totals flow to Schedule D.⁷ If you can’t document original cost basis, the IRS may assign a basis of zero and turn what should be a loss into a gain.

The Wash Sale Rule

If you sell a security at a loss and buy the same or a substantially identical security within 30 days before or after that sale, the loss is disallowed. Automatic dividend reinvestment plans catch investors here more often than you’d expect, because a scheduled reinvestment can fall inside the restricted window.⁸

The disallowed loss isn’t erased. It’s added to the cost basis of the replacement shares. If you bought stock for $5,000, sold for $4,000 (a $1,000 loss), and repurchased substantially identical shares for $4,200 within the window, your basis in the new shares is $5,200. You recover the loss when you eventually sell those shares, assuming you don’t trigger another wash sale.⁹

Substantially identical goes beyond exact same-stock repurchases. A mutual fund tracking the same index as an ETF you sold can trigger the rule. Options on the same stock count. The safe approach when harvesting losses is to wait a full 31 days before rebuying, or buy something in the same sector that isn’t substantially identical.

Worthless Securities

A stock or bond that becomes completely worthless is treated as sold for zero on the last day of the year it lost all value, producing a capital loss equal to your full basis.¹⁰ Pinning down the correct year matters. A company might trade, enter bankruptcy, and liquidate over several years; the loss belongs to the year value fell to zero, not the year it dropped sharply. You have seven years from that year’s filing deadline to amend and claim the loss, rather than the standard three. Keep proof of worthlessness: bankruptcy filings, dissolution records, or a broker statement removing the security as worthless. Report the loss on Form 8949 with your basis and zero proceeds.¹¹

Nonbusiness Bad Debts

A personal loan that becomes completely uncollectible is treated as a short-term capital loss, regardless of how long the debt existed.¹² The IRS scrutinizes these deductions. You need to show a real debtor-creditor relationship with a genuine obligation to repay, reasonable collection efforts, and that the debt is truly worthless rather than just difficult to collect. Written loan documentation helps. Partial deductions aren’t available for nonbusiness bad debts. The debt must be entirely uncollectible.

Ponzi Scheme Losses

Investors defrauded in a Ponzi-type scheme have a separate path. Revenue Procedure 2009-20 provides a safe harbor allowing a deduction of 75% of your net investment if you’re pursuing third-party recovery, or 95% if you’re not, after subtracting insurance or SIPC reimbursements. Claim it on Form 4684 by marking “Revenue Procedure 2009-20” at the top and attaching the required statement.¹³

Rental Property Expenses

Rental real estate operates on a different track. Operating costs are deducted against rental income on Schedule E, not as itemized deductions on Schedule A, so the permanent elimination of miscellaneous deductions doesn’t touch them.¹⁴

Deductible rental costs include management fees, insurance premiums, repairs, advertising, and local travel for property management. The important line is repairs versus improvements. Fixing a broken lock or repainting a room is a repair you deduct immediately. A new deck or a full roof replacement is an improvement that must be capitalized and depreciated.¹⁵

Depreciation is usually the largest single write-off. You recover the cost of the building (not the land) over 27.5 years for residential property or 39 years for commercial. It applies whether or not the property is actually losing market value, so it reduces taxable rental income without a cash outlay in the year you claim it.

Passive Loss Limits

Rental deductions can produce a paper loss, but using that loss against other income is limited. Rental income is passive by default, and passive losses can only offset passive income. You generally can’t apply a rental loss to your salary or dividends.¹⁶

One exception matters for many small landlords. If you actively participate — making tenant decisions, approving repairs, setting rent — you can deduct up to $25,000 in rental losses against non-passive income. That allowance phases out when modified adjusted gross income passes $100,000 and disappears entirely at $150,000. Married taxpayers filing separately who lived apart for the whole year get a reduced $12,500 allowance with a phaseout starting at $50,000. Those who lived together at any point during the year get no special allowance.¹⁷

Suspended passive losses carry forward, can offset passive income in future years, and are fully released when you sell the property in a taxable transaction. Track them across years. It matters when you eventually sell.

Qualified Business Income Deduction

Rental owners may also qualify for the Section 199A deduction of up to 20% of qualified business income. Rental activity isn’t automatically a business for this purpose, but a safe harbor treats it as one if you perform at least 250 hours of rental services per year and keep contemporaneous logs recording what was done, when, and by whom.¹⁸

Foreign Taxes on Investment Income

If you hold international mutual funds or foreign stocks, the country of origin often withholds tax on dividends. You have two options: deduct the foreign tax as an itemized deduction on Schedule A, or take a dollar-for-dollar credit on Form 1116. The credit is almost always better because it reduces your U.S. tax directly rather than only lowering taxable income.¹⁹

The credit has a second advantage: you can claim it even if you take the standard deduction. The deduction only helps if you’re already itemizing. One rule to keep in mind: you must choose credit or deduction for all foreign taxes in a given year. You can’t credit one country’s taxes and deduct another’s.¹⁹

State and Local Taxes on Investment Income

State and local income taxes on investment earnings are deductible as part of the SALT deduction on Schedule A. The One Big Beautiful Bill Act reshaped the SALT cap starting in 2025, replacing the $10,000 ceiling that had been in place since 2018.²⁰

For 2026, the SALT cap is $40,400, a 1% increase from the initial $40,000 set for 2025. Married taxpayers filing separately can deduct up to $20,200 each. The cap continues to rise by 1% annually through 2029, then reverts to $10,000 in 2030.²⁰

High earners face a phasedown. For 2026, when adjusted gross income exceeds roughly $505,000, the cap shrinks by 30 cents for every dollar above the threshold, flooring at $10,000 for the highest incomes.

The cap covers combined state and local income taxes (or sales taxes, if elected instead) plus property taxes. In high-tax states, property taxes alone can consume most of the cap, leaving little room for state income taxes on investment earnings to add value on top. Track and report the full amount anyway, because your tax picture shifts year to year.

1
Office of the Law Revision Counsel. 26 U.S. Code 67 – 2-Percent Floor on Miscellaneous Itemized Deductions
2
Office of the Law Revision Counsel. 26 USC 163 – Interest
3
Internal Revenue Service. Form 4952 – Investment Interest Expense Deduction
4
Office of the Law Revision Counsel. 26 U.S. Code 1222 – Other Terms Relating to Capital Gains and Losses
5
Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses
6
Office of the Law Revision Counsel. 26 U.S. Code 1212 – Capital Loss Carrybacks and Carryovers
7
Internal Revenue Service. Instructions for Form 8949 (2025)
8
Office of the Law Revision Counsel. 26 U.S. Code 1091 – Loss From Wash Sales of Stock or Securities
9
Internal Revenue Service. Case Study 1 – Wash Sales
10
Office of the Law Revision Counsel. 26 USC 165 – Losses
11
Internal Revenue Service. Instructions for Form 8949 (2025)
12
Office of the Law Revision Counsel. 26 U.S. Code 166 – Bad Debts
13
Internal Revenue Service. Revenue Procedure 2009-20 – Optional Safe Harbor Treatment for Losses in Fraudulent Investment Arrangements
14
Internal Revenue Service. About Schedule E (Form 1040) – Supplemental Income and Loss
15
Internal Revenue Service. 2025 Instructions for Schedule E (Form 1040)
16
Office of the Law Revision Counsel. 26 U.S. Code 469 – Passive Activity Losses and Credits Limited
17
Internal Revenue Service. Publication 925 (2025) – Passive Activity and At-Risk Rules
18
Internal Revenue Service. IRS Finalizes Safe Harbor to Allow Rental Real Estate to Qualify as a Business for Qualified Business Income Deduction
19
Internal Revenue Service. Foreign Tax Credit – Choosing to Take Credit or Deduction
20
Office of the Law Revision Counsel. 26 USC 164 – Taxes