Homeowners’ insurance generally won’t be tax-deductible if you live in the home that you’ve insured. However, if you rent out a part of your property or use the home as a vacation rental, then it’s considered a tax-deductible expense related to your business.
Unfortunately, homeownership insurance premiums are typically not tax-deductible for your personal residence. However, there are exceptions. For instance, you may be able to claim a business tax deduction if you work from home or rent your property.
Most people are surprised to learn that homeowners insurance isn’t tax-deductible. Unfortunately, the IRS treats homeowners insurance similar to other insurance products—such as life, auto, and umbrella insurance—which they consider personal expenses. The only exception is health insurance premiums, which are paid for using pre-tax dollars or through tax deductions.
Let’s take a deep dive into homeownership insurance and when it can be claimed as a deduction.
When can you deduct homeowners insurance?
There are only two scenarios when you can deduct homeowners insurance: when you have a rental property or use part of your home for business. In these cases, you can file homeowners insurance as a business expense.
If you’re a landlord for rental properties or rent out a section of your home, you can deduct the homeowner insurance premium (or the appropriate portion) as a business expense. Real estate investors who own multiple properties can deduct the insurance premiums of all the homes used for rental income
2. Home business deduction
Business owners who use their house (or part of it) for work may be able to deduct a percentage of their homeowner’s insurance premium as a deduction. Measure the square footage of your work area and calculate what percentage it represents of your home. Deduct the same percentage of your homeowner insurance as a business expense deduction.
If you’re self-employed and do not rent to others, then your insurance policy probably won’t be considered a deduction. Homeowner’s insurance premiums are not deductible unless it’s a rental home. If you worry about deductions or want to get clarification for your specific situation, call a tax professional.
What is a tax deduction exactly?
Tax deductions are expenses you can subtract from your taxable income. So, let’s say you have an income of $80,000 in taxable income and $20,000 in tax deductions. Your taxable income would be $60,000.
Most insurance premiums, such as life insurance and disability insurance, are not deductible from your taxes. However, you can deduct health insurance payments when you pay it with after-tax dollars.
Is homeowners insurance necessary?
Homeowners insurance may not be tax-deductible, but it is necessary. This is the insurance that protects your home from calamities. Everyone should have it. In fact, many lenders ask you to keep your home insured to a minimal level as part of your mortgage agreement.
Homeowners insurance covers sudden repairs needed as a result of inclement weather, accidents, as well as liability for lawsuits related to accidents that occur on your property. In other words, if your home sees serious damage, your homeowners insurance will save you from bankruptcy.
What does homeowners insurance not cover?
Though homeowners insurance comes with a lot of perks, it’s important to realize that your homeowner’s insurance premium doesn’t cover every unfortunate event. Most homeowners insurance will not cover the following items in a standard plan:
- Flooding. You generally have to buy flood insurance to have this covered. Flood insurance premiums are higher than average, especially if you live in a floodplain. It’s worth it if you live in an area with high rainfall or hurricane weather.
- Regular maintenance. Sadly, you can’t call homeowners insurance when you want to replace that heater or water boiler. If it’s considered part of regular maintenance, it won’t be covered by your insurance.
- Damage from neglect. Part of the agreement that comes with insurance payments is that you maintain your property. If damage occurs as a result of bad maintenance, it won’t be covered by your insurance.
- Mold. Mold used to be covered by flood insurance, but it is no longer covered by the majority of insurers. It’s considered to be damage from neglect because it’s hard to remediate.
Why is homeowners insurance so expensive?
Insurance costs rise with the amount of risk that you have. Homeowners insurance covers a ton of major repairs, such as replacing a roof that’s pulled up by a tornado or a lawsuit that occurred after your buddy fell down the stairs.
Because the price tag of the covered items can be so high, the insurance premiums will be just as high. They are, after all, taking on a huge risk.
Is homeowners insurance worth it?
No one likes spending hundreds of dollars on home insurance, but it’s worth it. While you may not have to make a single claim during your time in the home, if you do need it, it’ll be there. This is a huge defense against bankruptcy.
After all, most people couldn’t survive a financial calamity that wiped out everything they owned in their homes. Insurance keeps you from losing it all when you (literally) lose it all.
Are homeowners insurance and mortgage insurance the same?
Homeowners and mortgage insurance policies may sound similar, but they are completely different products. Let’s take a closer look at each to understand why they are different and how each impacts you.
Homeowner’s insurance premiums protect your house and belongings in the event of a disaster, such as a flood or a fire. It also protects you from injury liability regarding any accidents that occur in your home. You may also have additional types of insurance under this umbrella, like flood insurance.
If you do your home insurance shopping well, you can actually find a plan that covers everything. It’s all about knowing what to ask for when you shop, finding the right plan, and recognizing when what you’re asking for is unreasonable.
Mortgage insurance protects lenders, not you. This makes sure that they don’t suffer a complete loss if you can’t make your monthly mortgage payments. Most mortgage lenders require this if they are concerned about you being in the “grey area” of approval.
Private mortgage insurance is always a good way to make sure you get as much home as you can get on your budget. Thankfully, these types of insurance premiums are deductible. Without mortgage insurance, banks would likely fold under the strain that comes with a major mass default. It’s in the government’s interest to make things work for them.
Can you deduct mortgage insurance premiums?
Believe it or not, you can. Mortgage insurance is tax-deductible, even if it’s for your primary residence. So, make sure you get that write-off for your primary and secondary residences. You’ll thank yourself later.
If you worry about this or want to double-check what you can do, call a CPA or check the IRS website.
Find the best home insurance plan available
Since your home is probably your most valuable investment, it makes sense to choose the best homeowners insurance available. It goes without saying that you should look for a good price. But that’s not the only thing to consider. You also need to decide what coverage to get and make sure the insurance carrier has the financial stability to pay your claim when you need it. Finding a carrier with good customer service that makes it easy to file a claim is also important. SuperMoney’s comparison tools allow you to compare multiple carriers to see which offers the coverage you need and read what other policyholders have to say about their experience before you make a decision.
What homeowner expenses are tax-deductible?
While you typically can’t claim a deduction on your homeowner’s insurance, there are home-related deductions you can claim. Here are six to consider:
- Mortgage insurance premiums. Homeowners insurance and mortgage insurance are different. You can deduct your mortgage insurance payments from your taxable income and save money during tax season.
- Property taxes. Also known as State and Local Taxes (SALT), you can deduct up to $5,000 in property taxes (if filing as a single person) from any real estate that you have. To do this, itemize your taxes, which you can do using Schedule A of Form 1040.
- Home office. The home office deduction is great if you are self-employed and work from home. Home office deductions work one of two ways. You can either write it off by calculating the square footage of your office space or determining the percentage of your home’s total square footage. Storage space also counts in this issue.
- Specific updates. If you live in an area that has tax deductions or tax credit offers for eco-friendly upgrades like solar panels, go for it. Make sure to note which tax break you want when getting upgrades and ask an accountant about what documents you need to qualify for the deduction.
- Energy efficiency updates. Most states have one or two tax breaks if you make your home energy-efficient. This includes solar panels and window upgrades.
- Mortgage interest/home equity loan interest. Interest paid on your loans and mortgages is generally approved as itemized deductions. This can potentially save you thousands of dollars by tax day.
Can you write off your property insurance?
You cannot write off your property insurance premiums or the actual expenses related to it unless the premiums are for a rental home. In this case, you have to show that you’ve been getting income from your rental—often as a part of your adjusted gross income. If you have proof, the property insurance packages you get will be considered business expenses.
Can you claim house insurance on income tax?
Unfortunately, you cannot claim house insurance on your income tax return unless it is a part of your income via rental income. If you have a garage apartment or something similar, you might be able to write it off—but only for the percentage of your home that you’ve rented.
Can I write off home improvements?
Home improvements often end up as itemized deductions. If you are “fixing and flipping” for a profit, you can typically write them off as expenses for a tax break. Keep in mind that necessary home improvements (such as a medical ramp) are also tax deductions.
- Unless you have a rental property, homeowners insurance is not deductible.
- Thankfully, mortgage insurance premiums are tax deductions for all homeowners.
- Other important tax deductions include home offices, house upgrades, and property taxes.
- While homeowners insurance premiums aren’t deductible, policies are worth buying due to the protection offered.
- When in doubt, ask a certified public accountant what your best tax deduction options are.
- What is homeowner’s insurance? Why is homeowner’s insurance required? — Consumer Finance Protection Bureau
- Tax Information for Homeowners — IRS
- Home Mortgage Interest Deduction — IRS
- How to Find Renters or Home Insurance That Covers Everything — SuperMoney
- Tax Deductions and Credits List: Complete Guide for 2022 — SuperMoney
- Home Insurance: Reviews & Comparisons — SuperMoney
- Best Mortgage Lenders | February 2022 — SuperMoney