Tax-Deductible Investments

by Gregory Hamel ; Updated April 19, 2017
Income tax form with calculator and pen.

Tax deductions reduce your taxable income and cut the amount of income tax you have to pay at the end of the year. Investments can produce taxable income and increase the amount of tax you owe, but they can also make you eligible for certain tax deductions. Investments themselves generally are not tax deductible, but you can claim deductions on certain investment-related expenses.

Traditional IRAs

Investments are usually not tax deductible, but an exception arises in the case of traditional individual retirement accounts. Cash you save in a traditional IRA is tax deductible if you meet certain income and employment requirements. If you are not married, you can deduct all traditional IRA contributions on your 2014 tax return if you don't have a retirement plan at work or if your adjusted gross income (AGI) is $60,000 or less. If you are married and have a retirement plan through work, your IRA contributions are fully deductible if your AGI is $96,000 or less. If you don't have a retirement plan through work but your spouse does, your contributions are fully deductible if your AGI is $181,000 or less.

Investment Interest Expenses

You can deduct certain interest expenses you incur in connection with taxable investments. For example, if you take a loan from a stock brokerage firm and invest the cash in the stock market, the interest you pay on the loan is a tax-deductible investment expense. According to the Internal Revenue Service, the interest deduction is limited to the amount of your net investment income.

Capital Losses

Investing comes with the inherent risk of losing money, but you may be eligible for a tax break if you suffer capital losses. You can deduct up to $3,000 of net capital losses you had during the year. Net losses are losses in excess of your gains. If your losses exceed $3,000, you can carry the losses you aren't able to deduct forward to the next tax year.

Miscellaneous Itemized Deductions

Investments can involve a variety of other expenses that may be deductible as miscellaneous itemized deductions. Expenses that count as miscellaneous itemized deductions include fees paid for investment advice, the cost of software and services used to manage investments, and professional fees paid to produce or collect taxable income. Miscellaneous itemized deductions are generally subject to a 2 percent AGI limit: You have to subtract 2 percent of your AGI from your miscellaneous expenses to calculate the deduction.

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About the Author

Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.

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