Which investor expenses are deductible?

The short answer, and what it depends on

Investors often ask which of their costs they can deduct: the brokerage’s fees, an advisor, tax software, a safe deposit box, margin interest. Publication 550’s chapter on investment expenses answers narrowly. The chapter is organized around interest expenses, bond premium amortization, interest that is not deductible, and how to report them. Most other costs that used to be deductible as miscellaneous itemized deductions are gone: the publication states that you can no longer claim any miscellaneous itemized deductions. The deduction that remains valuable is investment interest, and it comes with a hard limit.

Investment interest: what qualifies

If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Investment property produces interest, dividends, annuities or royalties not derived in the ordinary course of a business, or gain or loss from selling such property. It excludes qualified home mortgage interest and any interest taken into account in figuring a passive activity. Margin interest on a loan used to buy taxable securities is the common example; a cash-method taxpayer deducts it in the year it is actually paid to the broker, including when the broker collects dividends or interest to cover it.

You must trace what the borrowed money was used for. The publication’s example: you borrow $10,000, use $8,000 to buy stock and $2,000 for household items. Eighty percent of the debt is allocated to investment, so 80% of the interest is investment interest and the other 20% is nondeductible personal interest. Loan proceeds deposited in an account are treated as investment property while they sit there. If you later withdraw them for another purpose, you reallocate.

The limit: net investment income

Your investment interest deduction is limited to your net investment income. You compute net investment income by subtracting investment expenses other than interest from investment income. Investment income generally means interest, ordinary dividends, annuities and royalties. It does not include qualified dividends or net capital gain unless you choose to include them on Form 4952, line 4g. If you do choose, you reduce the amount eligible for the lower capital gain rates by the same amount, so the publication tells you to compare the tax with and without the election.

Disallowed interest is not lost. It carries to the next year and is treated as investment interest paid or accrued then. The carryover is allowed even if it exceeds your taxable income.

The publication’s example shows the mechanics. Ted has $10,000 of investment income, $3,200 of investment expenses other than interest, and $8,000 of investment interest. His net investment income is $6,800, so he deducts $6,800 and carries $1,200 forward. (This example predates the loss of miscellaneous deductions, which is why $3,200 of expenses may not be deductible for a current-year individual; for a real return, put zero in the expenses field unless a specific expense is still allowed.) Enter the figures in the calculator above to see the split.

How to claim it

To deduct investment interest you must itemize on Schedule A (Form 1040) and enter the deductible amount on line 9. You attach Form 4952 unless you meet all three tests for skipping it: investment income from interest and ordinary dividends minus qualified dividends exceeds your investment interest expense, you have no other deductible investment expenses, and you have no carryover from last year. If you take the standard deduction, the deduction does nothing for you; compare with the standard vs itemized deduction calculator.

Interest you can never deduct

The publication lists interest on money borrowed to buy or carry a single-premium life insurance, endowment or annuity contract, interest on money borrowed to buy or carry a life insurance, endowment or annuity contract if you plan to systematically borrow the cash value increases, and interest incurred to produce tax-exempt income, such as borrowing to buy municipal bonds or a fund that pays only exempt-interest dividends. Interest and carrying charges on straddles also have special limits.

Bond premium and mutual fund expenses

If you pay a premium to buy a taxable bond, you can choose to amortize it, which each year reduces the interest you include in income. The choice is binding for all taxable bonds you own and acquire later and can be changed only with IRS approval. For tax-exempt bonds, amortization is mandatory but not deductible; it reduces your basis. Publicly offered mutual funds do not pass expenses through to you, since the dividend in box 1a is already reduced by your share, so you cannot deduct those fees separately. Shareholders in nonpublicly offered funds have to include the expenses in income and may be unable to deduct them.

When you deduct

Cash-method investors generally deduct expenses in the year they pay them. Interest paid in advance for a period beyond the year-end must be spread over the years it belongs to. Accrual-method taxpayers deduct when the liability is incurred, with a limit for amounts owed to a related cash-basis person.

Limits of this page

This page covers individual investors and federal tax. It does not cover business expenses of traders who qualify as being in a trade or business, or passive-activity and at-risk limits beyond a brief mention. To estimate the cost side of a margin loan before it becomes a deduction, use the margin interest calculator. Net investment income here is for the investment interest limit and is not the same as the 3.8% surtax base; for that, see the NIIT calculator.

Sources

• IRS Publication 550, Investment Income and Expenses (2025): Investment Expenses (chapter 3): Limits on Deductions, Interest Expenses, Investment Interest, Limit on Deduction, Net Investment Income, Form 4952, Bond Premium Amortization, Nondeductible Interest Expenses, How To Report Investment Interest Expenses and When To Report Investment Expenses. Page last reviewed or updated by the IRS April 30, 2026. Read November 2, 2026.

Edition read: Publication 550 (2025), for use in preparing 2025 returns. Dollar limits and thresholds quoted on this page are for 2025 and can change; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.