Portfolio Deductions Subject to the 2% Floor: What Still Works

Portfolio deductions that were subject to the 2% adjusted gross income floor — investment advisory fees, tax preparation costs tied to investment income, IRA custodial fees paid outside the account, financial data subscriptions, safe deposit box rentals, and similar expenses — are no longer deductible on your federal return. The One Big Beautiful Bill Act, signed on July 4, 2025, made permanent the suspension that the Tax Cuts and Jobs Act put in place for 2018 through 2025. Section 67(h) of the Internal Revenue Code now disallows every miscellaneous itemized deduction subject to the 2% floor for any tax year beginning after December 31, 2017, with no expiration date.¹

If you were counting on these deductions returning in 2026, they aren’t. The advice some advisors gave during the temporary suspension — keep records of your investment fees in case the deduction comes back — no longer applies. Investment management is now an after-tax expense for individual taxpayers at the federal level.

Which Portfolio Expenses This Covers

The tax code defines miscellaneous itemized deductions by exclusion. Section 67(b) lists the itemized deductions that are exempt from the category — mortgage interest, state and local taxes, charitable contributions, medical expenses, and a handful of others. Everything else that would otherwise qualify as an itemized deduction falls into the miscellaneous pool.¹

For investors, the expenses caught by the permanent elimination include:

Investment advisory and wealth management fees, including asset-under-management fees.
Tax preparation fees, to the extent they relate to investment income rather than self-employment income reported on Schedule C.
IRA custodial fees, when paid with outside funds rather than deducted from the account.
Subscriptions to investment newsletters, market data platforms, and financial publications used to manage a portfolio.
Safe deposit box rentals used for investment documents or securities.
Legal and accounting fees connected to producing taxable investment income.
Travel to shareholder meetings or investment seminars.

Unreimbursed employee business expenses — professional dues, required uniforms, work-related costs your employer didn’t reimburse — sat in the same pool and are also gone. The common thread was that these costs related to earning income but didn’t rise to the level of a trade or business deduction.

How the Elimination Became Permanent

The Tax Cuts and Jobs Act of 2017 didn’t repeal Section 67. It added a provision setting the allowable amount to zero for tax years 2018 through 2025, with a sunset built in. If Congress had done nothing, the deductions and the 2% floor mechanism would have returned for the 2026 tax year.

Congress didn’t do nothing. The One Big Beautiful Bill Act rewrote Section 67(h) to remove the sunset date. The disallowance now runs indefinitely.¹ Barring new legislation, there is no scenario under current federal law where investment advisory fees or the other expenses listed above become deductible on an individual return.

Two structural facts soften the practical impact. First, the standard deduction is high enough that most taxpayers wouldn’t itemize even if the miscellaneous category returned: for 2026 it stands at $32,200 for married couples filing jointly and $16,100 for single filers.² Second, the 2% floor itself had already made the deduction largely theoretical for middle-income investors — a taxpayer with $200,000 in AGI needed more than $4,000 in miscellaneous expenses before a single dollar became deductible.

Investment Deductions That Still Work

Not every investment-related deduction was miscellaneous, and the ones outside that category survived both the TCJA suspension and the permanent elimination.

Investment Interest Expense

Interest paid on money borrowed to buy taxable investments — margin loans used to purchase stock, for example — remains deductible as an itemized deduction. It falls under the interest deduction provisions of the tax code, which Section 67(b) explicitly excludes from the miscellaneous category.¹

The deduction has its own ceiling: you can only deduct investment interest up to your net investment income for the year. Net investment income generally includes ordinary dividends and taxable interest, but not long-term capital gains taxed at preferential rates or tax-exempt municipal bond interest, unless you elect to treat capital gains as investment income. Any interest you can’t use in the current year carries forward.³ Interest on loans used to buy tax-exempt investments like municipal bonds doesn’t qualify.

The result is an asymmetry worth noting: an investor who borrows on margin to buy taxable securities still has a deduction path, while the advisory fee on those same securities is permanently nondeductible.

Amortizable Bond Premium

If you pay more than face value for a taxable bond, you can amortize the premium over the bond’s remaining life and offset the interest income. Section 67(b) lists this deduction as exempt from the miscellaneous category, so it’s unaffected.¹

Rental Property and Self-Employment

Expenses tied to rental property are reported on Schedule E and reduce your income before AGI is calculated — mortgage interest, repairs, insurance, depreciation, and property management fees are above-the-line deductions, never miscellaneous itemized ones.⁴ The same goes for self-employment expenses reported on Schedule C. If part of your tax prep bill relates to Schedule C or Schedule E income, that portion has always been deductible on the relevant schedule and still is.

Gambling Losses

Gambling losses remain deductible as an itemized deduction up to the amount of gambling winnings you report. They’re classified under a separate code section that the statute excludes from the miscellaneous definition, and they’re reported on Schedule A under “Other Itemized Deductions.”⁵

Impairment-Related Work Expenses and Estate Tax on IRD

Two other narrow deductions listed as exempt in Section 67(b) also survive: impairment-related work expenses that a disabled employee incurs to be able to work, and the estate tax deduction for income in respect of a decedent, which allows an heir to deduct estate tax attributable to inherited income that was taxed in the decedent’s estate.¹

Trusts and Estates

Trusts and estates are treated differently from individuals. Section 67(e) preserves a deduction for administration costs that are unique to a trust or estate and that an individual would not typically incur. The Supreme Court in Knight v. Commissioner framed the test as whether the cost would be uncommon for a hypothetical individual to incur.⁶ Fiduciary fees, judicial accounting costs, and estate tax return preparation fees pass that test. Investment advisory fees paid by a trust do not — they’re the kind of expense an individual would also incur — and they’re subject to the same permanent elimination that applies to individuals.

State Returns May Still Allow These Deductions

The federal elimination doesn’t automatically flow through to state income tax. Some states conform to the current federal code and mirror the disallowance. Others use fixed-date conformity, following the federal code as it stood on a specific date that may predate the TCJA. And some, including California and New York, have historically allowed deductions the federal government no longer permits. If you had significant investment expenses and live in a state with an income tax, check your state’s rules before assuming the deduction is dead everywhere. It won’t help your federal return, but it may still reduce your state bill.

1
Office of the Law Revision Counsel. 26 USC 67 – 2-Percent Floor on Miscellaneous Itemized Deductions
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
3
Office of the Law Revision Counsel. 26 USC 163 – Interest
4
Internal Revenue Service. Renting Residential and Vacation Property
5
Internal Revenue Service. Topic No 419 Gambling Income and Losses
6
Justia. Knight v Commissioner, 552 US 181 (2008)