Types of Investment Deductions:

1. Capital Loss Deduction: Up to $3,000 deduction for capital losses exceeding capital gains.

2. Investment Interest Expense Deduction: Deduction for interest paid on investment loans.

3. Investment Management Fees: Deductions for fees related to investment management, advisory services, or custodial services.

4. Safe Deposit Box Fees: Deduction for fees related to safe deposit boxes used for storing investment-related documents or assets.

Capital Loss Deduction:

• Net Capital Loss: Calculate net loss by subtracting capital gains from capital losses.

• $3,000 Limitation: Up to $3,000 of net capital loss can be deducted against ordinary income.

• Carryover: Excess losses can be carried over to future tax years.

Investment Interest Expense Deduction:

• Net Investment Income: Calculate net investment income (e.g., interest, dividends, capital gains).

• Interest Expense: Deduct interest paid on investment loans, subject to limitations.

• Limitations: Deduction limited to net investment income.

Other Investment Expenses:

• Investment Advisory Fees: Deductions for fees paid to investment advisors or managers.

• Custodial Fees: Deductions for fees related to custodial services for investments.

Key Considerations:

• 2% AGI Floor: Miscellaneous itemized deductions (including investment expenses) subject to 2% adjusted gross income (AGI) floor (Note: This might be suspended or modified under certain tax laws).

• Accurate Record-Keeping: Keep records of investment expenses, interest paid, and capital transactions.

Tax Planning Strategies:

• Tax-Loss Harvesting: Offset gains with losses to minimize tax liability.

• Optimize Investment Expenses: Consider tax implications when selecting investment products or services.

Forms:

1. Form 8949: Sales and Other Dispositions of Capital Assets

2. Schedule D: Capital Gains and Losses

3. Form 4952: Investment Interest Expense Deduction

4. Form 1040: Individual Income Tax Return (for reporting investment income and deductions)

Regulations:

1. Section 165: Losses (IRC Section 165 governs capital loss deductions)

2. Section 163(d): Limitation on Investment Interest (IRC Section 163(d) governs investment interest expense deductions)

3. Section 212: Expenses for Production of Income (IRC Section 212 governs investment expenses)

Other Requirements:

1. Accurate record-keeping: Keep records of investment transactions, expenses, and interest paid.

2. Reporting requirements: Report investment income and deductions accurately on tax returns.

Tax Authority Guidance:

1. IRS Publication 550: Investment Income and Expenses

2. IRS Publication 514: Foreign Tax Credit for Individuals