How and When to Report Investment Expenses on Your Income Tax Return

 JC Leahy, MA Accounting

 For my friend Joe:

Capital vs Expense

Not all outlays for an investment property are expenses.  Outlays to acquire, renovate, or extend the useful life of an investment property must be capitalized.  On the other hand, ordinary and necessary expenses to hold, operate and maintain an investment property are deductible as investment expenses.

How To Report Investment Expenses 

To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). Enter your deductible investment interest expense on Schedule A (Form1040), line 14. Include any deductible short sale expenses.  Also attach a completed Form 4952 if you used that form to figure your investment interest expense.  Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. List the type and amount of each expense on the dotted lines next to line 23. (If necessary, you can show the required information on an attached statement.)  If your thinking includes rental real estate as an investment, obviously those expenses are reported on Schedule E. 

When To Report Investment Expenses

If you use the cash method, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them.  If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them.

FOR MORE INFORMATION SEE MY EARLIER ARTICLE ON INVESTMENT EXPENSES.