Quick primer

Investment fees are the charges you pay for running or accessing investment services — advisory fees, fund management or wrap fees, trade commissions, and legal/accounting services tied to investments. Whether those fees are deductible depends on how the fees are charged, the type of account involved, and current tax law. As of 2025, most miscellaneous itemized deductions (including many investment management fees) remain suspended under the Tax Cuts and Jobs Act, but some fees can still be deducted in other ways. (See IRS Publication 550 for details.)

Why this matters now

Investment fees reduce your net return whether or not they’re deductible. Tax treatment matters because a deduction reduces taxable income; when a fee is not deductible you should still consider it when evaluating a manager or product. In my practice I’ve seen clients assume advisory fees are deductible only to find out late in the year they are not — that changes after-tax returns and retirement planning calculations.

How the tax rules actually work

  • Suspension of miscellaneous itemized deductions: The Tax Cuts and Jobs Act (TCJA) suspended miscellaneous itemized deductions subject to the 2% of adjusted gross income (AGI) floor for tax years 2018 through 2025. That suspension eliminated the common route many investors previously used to deduct advisory and investment-management fees on Schedule A (itemized deductions). (IRS overview of TCJA and Publication 550.)

  • Investment interest deduction (Form 4952): Interest you pay to buy taxable investments (for example, margin interest) may be deductible as investment interest, but the deduction is limited to your net investment income. You report and compute this deduction on Form 4952. Investment interest does not include interest related to tax-exempt income or qualified dividends that are taxed at the lower capital-gains rates unless certain elections apply. (IRS Publication 550.)

  • Business or rental-related expenses (Schedules C or E): If you’re managing investments as a trade or business (rare for individual passive investors) or you incur expenses to manage rental properties, those fees may be deductible as business expenses on Schedule C or Schedule E respectively. For example, legal and accounting fees for investment property management typically belong on Schedule E. (IRS Publication 535 and Publication 527 cover business and rental rules.)

  • Cost-basis treatment (not a current-year deduction): Commissions and many trading-related fees are generally added to the purchase price of the security and reduce your capital gain (or increase your loss) when you sell — they’re not taken as a separate current-year deduction. That makes accurate record-keeping essential because these costs affect future capital gains reporting and taxable profit. (IRS instructions for Form 8949 and Schedule D.)

  • Retirement-account fees: Fees charged inside tax-advantaged accounts such as IRAs or 401(k)s generally are not deductible on your personal return. Those fees reduce the account balance and its growth but do not provide a separate personal deduction. (IRS Publication 590 and plan rules.)

Practical, step-by-step approach to handling investment fees on your return

  1. Classify the fee. Is it: (a) interest on margin debt; (b) advisory/management fee charged to you outside an IRA; (c) commission or transaction cost; (d) legal/accounting fee tied to rental or business activity; or (e) fee charged inside an IRA/retirement account?
  2. If it’s margin interest, compute net investment income and complete Form 4952 to determine allowable investment interest deduction.
  3. If fees are for rental or business investment activity, treat them on Schedule E or Schedule C as ordinary and necessary business expenses with supporting documentation.
  4. If fees are commissions or trade-related charges, add them to cost basis and keep brokerage statements and trade confirmations for Form 8949 and Schedule D.
  5. For advisory or wrap fees paid personally: because miscellaneous itemized deductions are suspended through 2025, do not expect an itemized deduction unless the fee is tied to a business or rental activity.
  6. Keep detailed records: invoices, statements, 1099-B( or 1099-INT), trading confirmations, and a clear paper trail showing the fee’s purpose and to whom it was paid.

Short examples (numbers make the difference)

  • Investment interest example: You paid $5,000 in margin interest in 2024 and your net investment income (taxable interest, ordinary dividends, non-qualified capital gains) is $4,000. Your deductible investment interest for 2024 is limited to $4,000; the remaining $1,000 can be carried forward to future years (Form 4952 instructions).

  • Cost-basis example: You bought 100 shares at $50 and paid a $10 commission. Your basis is $5,010. When you sell, that $10 lowers your taxable gain.

  • Retirement account example: You paid a $1,200 annual advisory fee taken directly from your IRA account. You cannot deduct that $1,200 on your Form 1040 — it reduces the IRA’s value and future distributions but is not a current personal deduction.

Who is most affected or eligible

  • Most individual investors who simply pay advisory fees and itemize will not be able to deduct those fees during the TCJA suspension period unless they are tied to a business or rental activity.
  • Investors who borrow to invest and pay margin interest can often claim the investment interest deduction, subject to limits.
  • Real estate investors and business owners who incur legal/accounting/advisory fees tied to taxable rental/business activities can often deduct those expenses on Schedule E or C.

Recordkeeping checklist (what I recommend to clients)

  • Year-end brokerage statements and monthly trade confirmations
  • Invoices for advisory, legal, and accounting fees showing the fee’s purpose
  • Form 1099-B (sales), 1099-INT (interest), and 1099-DIV (dividends)
  • Documents showing margin loan interest paid (brokerage statements)
  • Any contracts or fee schedules (to prove whether fees were charged inside a tax-advantaged account)

Maintain these records for at least three years after filing (longer if you have carryforwards or complex tax positions). The IRS discusses recordkeeping for investments in Publication 550 and for business expenses in Publication 535.

Common mistakes and misconceptions

  • Assuming advisory fees are deductible on Schedule A: not true for most taxpayers while the TCJA suspension remains in effect (through 2025). (IRS Publication 550.)
  • Treating commission and transaction costs as current deductions: these generally adjust cost basis instead.
  • Forgetting to treat margin interest separately: it uses a distinct capital/investment interest computation (Form 4952).
  • Overlooking rental- or business-related fees that should be deducted on Schedule E or C instead of Schedule A.

Strategies and professional tips

  • Negotiate fees and compare net returns. Because many investment fees are not deductible, the arithmetic of net returns matters more — lower fees compound into larger long-term differences.
  • Consider fee bundling: some wrap accounts bundle trading and advisory fees. If the fee is taken from a tax-advantaged account, the tax benefit is different from paying the adviser personally.
  • Use tax-aware managers and custodians that provide clear reporting on fees and basis adjustments — it simplifies tax preparation.
  • Review your situation with a tax professional before making year-end moves that rely on fee deductibility; laws change, and the 2018–2025 TCJA suspension may be amended after 2025.

Related reading on FinHelp.io

Frequently asked questions

Q: Can I deduct advisory fees if I don’t itemize?
A: No. Until the TCJA suspension ends for miscellaneous itemized deductions, advisory fees that would have been claimed on Schedule A are not deductible for taxpayers who don’t have a business or rental activity that qualifies the fees as ordinary business expenses.

Q: Where do I report margin interest?
A: On Form 4952 you compute the allowable investment interest deduction and report it on Schedule A (if you itemize). If the deduction is limited, you can carry the disallowed interest forward.

Q: Do trading commissions reduce my tax bill now?
A: Trading commissions generally increase your cost basis and lower capital gains when you sell — they are not typically a separate deductible expense in the year paid.

Sources and further reading

Professional disclaimer

This article is educational and reflects general tax rules current as of 2025. It does not replace personalized tax advice. For decisions that affect your tax return, consult a licensed tax professional or CPA who can review your full financial picture.