Investment Expenses: What Individuals Can and Cannot Deduct in 2025
Published November 7, 2026
Publication 550 (2025), Investment Income and Expenses, covers interest, dividends, and other income from investments. Chapter 3 explains which investment expenses you may deduct. This guide summarizes that chapter. It is general information. It is not advice about your case.
What the publication calls an investment expense
It describes investment expenses as your allowed deductions, other than interest expense. The deductions must be directly connected with producing investment income. Investment income includes interest and dividends. It also includes similar amounts from property you hold for investment. It describes investment property as property that produces interest, dividends, annuities, or royalties. It is not held in the ordinary course of a trade or business. Investment interest is a separate topic with its own rules.
The 2025 limit
It includes a note that you can no longer claim any miscellaneous itemized deductions. It also says that some bond premium amortization is a miscellaneous itemized deduction. That deduction is not subject to the 2%-of-adjusted-gross-income limit. It applies to certain older bonds. For most people, investment expenses other than interest are not deducted for 2025. They are not deducted on Schedule A. Check the Schedule A instructions and the publication before you file. The rules for a specific case may differ. Tax limits can change. Use the publication for the year you file.
Chapter 3 lists three limits on investment expenses. They are the at-risk rules, the passive loss limits, and the investment expense limit. The chapter explains the at-risk and passive activity rules briefly. Publication 925 explains them in full. The chapter also explains portfolio income, which includes interest and dividends from investments.
Investment interest is different
If you borrow money to buy investment property, the interest is investment interest. You can deduct it, but only up to a limit. You report it on Form 4952. It also says you cannot deduct interest you incur to produce tax-exempt income. That includes interest on money borrowed to buy tax-exempt securities. It also includes shares in a fund that pays only exempt-interest dividends. Qualified home mortgage interest is not investment interest. For more on this form, see Investment Interest Expense and Form 4952: Basics.
Bond premium
Bond premium is the amount by which your basis is more than the amounts payable. Only amounts payable after you get the bond count. Your basis is measured right after you get the bond. Qualified stated interest does not count in that total. For example, a $1,000 bond bought for $1,050 generally has a $50 premium.
If the bond yields taxable interest, you can choose to amortize the premium. Each year, part of the premium then reduces the interest you report. If the bond yields tax-exempt interest, you must amortize the premium. The amortized amount is not deductible. You must still reduce your basis by it each year.
Expenses for tax-exempt and taxable income
Some expenses relate to both tax-exempt and taxable income. If you cannot tell which part relates to each type, divide the expenses fairly. It says you must attach a statement that shows how you divided the expenses. The statement must also say that each deduction is not based on tax-exempt income.
Timing and records
If you use the cash method, you generally deduct expenses when you pay them. If you use an accrual method, you generally deduct them when you incur the debt. Keep brokerage statements, Forms 1099, and records of the expenses you paid. Also keep records of any bond premium you amortized. Some expenses are also limited by the at-risk rules. Passive activity rules can limit them too. Those rules are explained in the publication and in Publication 925.
Next steps
Start by listing your investment income for the year. Then list each cost you paid to produce that income. Separate the interest from the other expenses. Check whether any of your costs belong to tax-exempt income. If you hold bonds bought at a premium, check Form 1099-INT. Do this before you file. For interest and dividend reporting, see Schedule B: Interest and Ordinary Dividends.
Sources: Sources: IRS, Publication 550 (2025), Investment Income and Expenses (https://www.irs.gov/pub/irs-pdf/p550.pdf) This is general information, not advice about your specific return.
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