You may deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Form 1040, Schedule A (PDF), line 22, Itemized Deductions. This would include depreciation on the portion of your computer used for investment purposes, and the portion of your internet access charges used for investment purposes.

The entire acquisition cost of a computer purchased for business use can be expensed under Code section 179 in the first year if qualified, or depreciated over a 5-year recovery period. Under section 179, you can elect to recover all or part of the cost of certain qualifying property, up to a dollar limit, by deducting it in the year you place the property in service. You can elect to expense the cost of qualifying property instead of recovering the cost by taking depreciation. To claim the expense in the first year, the property must be used more than 50% for business use (as opposed to investment use), and meet the other requirements for expensing. One of those requirements is that the total cost of qualifying property you can deduct after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Any cost not deductible in one year under section 179 because of the business income limit can be carried to the next year.

The 2003 Jobs and Growth Act raised the aggregate cost that can be expensed for any tax year beginning after 2002 and before 2006 to $100,000. The new law also expanded the definition of Code Section 179 property to include off-the-shelf computer software. See Code Section 179 for the expanded definition. If the business use falls to 50% or less in a later year, these tax benefits may be subject to recapture. See Publication 946 , How to Depreciate Property for additional information on the section 179 deduction.

Because these deductions are for investment expenses rather than for business expenses, these deductions must be reduced by 2% of your adjusted gross income. Use Form 4562 (PDF), Depreciation and Amortization, to compute the depreciation for the portion of your computer used for investment purposes.

Note: Unless the computer is used more than 50% for business purpose (as opposed to investment purposes), you cannot claim section 179 expensing of the computer or claim accelerated depreciation (including the special depreciation) for it. For more information, refer to "Listed Property" in Publication 946, How to Depreciate Property.