Is Homeowners Insurance Tax-Deductible?

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No. In most cases, homeowners insurance premiums are not tax-deductible on your federal tax return. Some expenses associated with owning a home, such as real estate taxes, sales taxes, mortgage interest and mortgage insurance premiums, can be deducted but homeowners insurance cannot be.

When Homeowners Insurance Premiums Can Be Deducted

Homeowners insurance premiums usually cannot be deducted from a tax return because most people only use their home for personal purposes – they live in it. For that reason, the IRS (Internal Revenue Service) considers homeowners insurance premiums nondeductible payments, much like the cost of utilities or wages paid to domestic help. But there are some cases in which someone can deduct their homeowners insurance and other related insurance premiums, which we've detailed below. Considering the cost of homeowners insurance, the write off is definitely something a policyholder should take advantage of if they can.

Deducting Insurance Premiums For A Home Office

The only circumstance in which homeowners insurance premiums can be deducted on a tax return is when a policyholder has a home office. A homeowner can deduct from their homeowners insurance premiums the same percentage of housing expenses that were allocated toward the home office. For example, if 10% of a policyholder’s housing expenses go directly toward their home office, they can write off 10% of their home insurance premiums for that year.

Not every room with a desk counts as a home office and enables someone to write off part of their homeowners insurance premiums. A workspace must qualify for a home office deduction and be covered under a person’s homeowners insurance policy in order for them to write off any portion of their premiums.

Any office, free-standing structure, or garage can qualify for the write-off, as long as the area is solely devoted to operating the business. It should also be the principal place that the business operates, although if someone conducts business outside of their home, they still might be eligible for the home office and homeowners insurance tax deductions.

A Home Office Might Require Additional Insurance

Depending on the business someone is running out of their home, a policyholder might find their homeowners insurance won’t cover the total value of the business property on site, or won’t cover the type of business they run at all.

For example, if someone runs a small stationary business out of their apartment, most homeowners insurance companies would cover the related business materials up to a few thousand dollars. But a policyholder who operates a daycare out of their home will likely be required by their homeowners insurance company to purchase an endorsement or a separate commercial policy.

Deducting Homeowners Insurance Losses

No, generally not. If someone files an insurance claim for a loss – whether it is for $5,000 or $50,000 – they cannot write off the amount of the claim settlement on their tax return. However, if someone suffers a home-related loss and is only partially reimbursed by their insurer they can deduct the remaining value of their lost property that was not reimbursed.

For example, say a homeowners insurance company pays out $10,000 for a $15,000 deck destroyed in a fire. In that situation, the homeowner would be able to write off a $5,000 loss for the deck, according to the IRS.

Deducting Thefts And Casualty Losses

A theft or casualty loss can also be deducted on a federal tax return, but a number of stipulations apply. Like other losses, such as those caused by a fire or wind damage, a policyholder can only write off what they were not reimbursed for. For example, if a homeowners insurance company reimburses a policyholder $2,500 for jewelry valued at $3,000 (assuming they had a $500 insurance deductible) then they would not be able to write off any of the loss.

Any loss due to theft that is unclaimed can be deducted on your federal tax return, as long as it meets certain requirements. Whatever the value of the property stolen, the owner must subtract $100 per incident as well as 10% of their adjusted gross income. Whatever amount is left over can be deducted on the federal taxes.

Deducting Private Mortgage Insurance

Premiums for private mortgage insurance, which protects a mortgage lender in the event a borrower defaults on their loan, can be written off on a federal tax return. Even though private mortgage insurance protects the lender, the cost of the premiums is paid for by the borrower and is usually part of their mortgage payment. 

For some borrowers, this could be a significant deduction, since the cost of a mortgage insurance premium could be as high as 1.2% the cost of the loan value. The loan-to-value and claim payout ratios, as well as the borrower's FICO score, all impact the cost of mortgage insurance premiums

Mortgage insurance premiums for policies through the Department of Veterans Affairs or Rural Housing Service are not subject to the same rules. Homeowners paying mortgage insurance premiums through those agencies should consult the IRS website and their policy regarding their federal tax return.

Deducting Insurance Costs For Rental Properties

Homeowners insurance premiums for policies that cover a rental property can be deducted on a federal tax return. The cost of those premiums is considered a business expense and, like most other business expenses, the benefit of writing that expense off is available to landlords. 

The deductible percentage of homeowners insurance premium cost is dependent on the rental property. If someone is renting a basement apartment of the landlord’s home, the landlord can only write off a portion of their homeowners insurance premium, since it is covering more than the rental property. 

If a landlord owns and rents an independent home or condo that is not connected to their personal residence, they can write off 100% of the homeowners insurance policy covering that rental unit.

Landlords can also write off other insurance policies affiliated with their rental business, such as an umbrella policy expanding their liability coverage. Regardless of whether a landlord’s homeowners insurance coverage covers the same home as their renters, they should be able to deduct the premiums for an umbrella policy.

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