Investment Deductions for State Filing

[carriskoul]

I have federally tax-exempt interest dividends that get taxed as Illinois income.  Under the TT interview, it asks "Any Deductible Expenses?"  In 2021, did you pay any expenses that:

• Were used to maintain investments that are exempt from federal tax, but are taxable to Illinois?
• Were disallowed on your federal return because you took a credit for them?"

Are the "advisory fees" I paid to my brokerage account throughout 2021 that held this asset that generated the subject income a deductible expense per the first bullet?

Thanks - Carris

[AliciaP1]

Yes, if the expenses were necessary to maintain the account they are deductible against the dividend income from the investment. 

[carriskoul]

Thank you AliciaP1.

This was the fee the brokerage charged as a percentage of my portfolio value.  So if let’s say I paid the brokerage $1,000 to manage my portfolio for the year, then I can deduct that $1,000 on my state return even though the dividend income was from a portion of the portfolio.  Is this correct?

[JohnW152 · Accepted solution]

You can take, as a subtraction against Illinois income, the portion of the $1,000 that relates to the portion of your investment that was exempt from federal tax, but taxable by Illinois.

If your entire portfolio is the federally tax-exempt income, you can claim the entire expense.  If, say, 25% of the portfolio is reflected by this income, you can claim 25%.  Make a reasonable estimate.

See Schedule M IL-1040 Instructions for more information.