On December 20, 2017 one of the most overhauling tax reforms passed. The Tax Cut and Jobs Act impacts investors in many ways.

Let’s explore some of the tax reform changes that will affect investors the most.

Investment Expenses repealed

Individual investors will be losing the investment expenses they used to claim on their schedule A itemized deduction as the act suspends “all miscellaneous itemized deductions that are subject to the two-percent floor under present law.” Investment expenses include items such as investment advisory fees (your brokerage firm), newsletter fees, subscriptions, accounting and legal fees and even data fees.

The repeal of this section could mean the loss of thousands of dollars in tax savings that investors were accustomed to getting on a yearly basis.

Investment Interest Expense retained

The present law remains in effect for itemizing investment interest expense. Investment interest expense is deductible up to the extent of investment income. The excess is carried over to the subsequent tax year.

Short Sellers Deduction repealed

Brokerage firms charge short sellers what’s known as stock borrow fees. Many brokers list this expense as interest charges, but it does not change the fact that these costs should be categorized as investment expenses. To support any interest deduction, there must be a valid interest-bearing obligation under state or federal law. The IRS has ruled that short sales do not give rise to an interest-bearing indebtedness (Revenue Ruling 95-8, 1995-1 CB 107). The bottom line is, under the new tax act, short sellers that are considered traders in securities will not be able to deduct this cost.

Long Term Capital Gains (LTCG) retained

Investors holding positions more than a year will still be able to benefit from prior LTCG at 0%, 15% and 20% based on their Annual Gross Income (AGI). The Act did not change the small $3,000 capital loss limitation against other income, or capital loss carryovers to subsequent tax years. The Act also retains LTCG rates on qualified dividends.