Is Homeowners Insurance Tax-Deductible?

Is Homeowners Insurance Tax-Deductible?

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Generally, no: Most costs related to homeowners insurance are not tax-deductible on your federal tax return. This includes your home insurance premium as well as any property losses you incur, regardless of whether the losses are covered by homeowners insurance.

There are a few exceptions: You can deduct a portion of your home insurance premium on your taxes if you use part of your home for business purposes, and you can deduct any uninsured financial losses if your home is damaged in a federally recognized disaster.

When homeowners insurance premiums can be deducted from taxes

Homeowners insurance premiums usually cannot be deducted on an income tax return, because most people only use their home for personal purposes (i.e., living in it). For that reason, the Internal Revenue Service (IRS) considers homeowners insurance premiums nondeductible payments, much like the cost of utilities.

This also applies to all types of personal home insurance, including hazard coverage, liability coverage, and more specific forms such as earthquake insurance or flood insurance. If the coverage applies to personal home usage, none of those premiums can be written off.

However, there are some cases in which someone can deduct their homeowners insurance and other related insurance premiums. 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

One of the few circumstances 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 for tax-deduction purposes. A workspace must qualify for a home office deduction and be covered under a person's homeowners insurance policy in order for a portion of the premium to be written off.

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

A home business might require additional insurance coverage

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 you run a small stationery business out of your apartment, most homeowners insurance policies will cover related business materials such as paper, computers and pens up to a few thousand dollars. But a policyholder who operates a day care out of their home will likely be required by their homeowners insurance company to purchase an endorsement or a separate commercial insurance policy.

Deducting homeowners insurance losses: Only in a disaster

You generally can't deduct losses due to personal casualty or theft, regardless of whether the loss is covered by insurance. The only exception is if the loss occurred in a federally declared disaster area and was caused by the disaster. For example, in 2019, some of the federally declared disasters included hurricanes Barry and Dorian, along with several floods, winter storms and wildfires.

If you file an insurance claim related to a federally declared disaster, you cannot write off the amount of the claim settlement on your taxes. However, if you're only partially reimbursed by your insurer, you can deduct the remaining value of the lost property that was not reimbursed. This amount may include your homeowners insurance deductible, as well as depreciation if you have actual cash value coverage on your property.

In addition to the value of the damaged property, you'll have to subtract $100 per incident, along with 10% of your adjusted gross income (AGI) from the total dollar amount of damage. Whatever amount is left over can be deducted on your federal taxes, so long as you're taking itemized deductions.

You also may not deduct the cost of home improvements that go beyond the cost of repairs. So if you spend additional money to improve your house to a better condition than it was before it was damaged in the disaster, those extra costs would not be tax-deductible.

For example, say a homeowners insurance company pays out $10,000 for a $15,000 deck destroyed in a hurricane. In that situation, the homeowner would be able to write off $4,900 of the loss, minus 10% of your AGI, according to the formula specified by the IRS. But if you spent an additional $20,000 in order to make the deck nicer than it was before, you would not be able to write off the extra expense.

Deducting private mortgage insurance

Since the 2018 tax year, mortgage insurance premiums have not qualified as deductible expenses. If you're paying your mortgage, home insurance and PMI through a single escrow account, know that most of this isn't tax deductible. In most cases, the only tax-deductible portion is the interest you paid on your mortgage.

Deducting insurance costs for rental properties

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

The tax-deductible portion of your insurance premium depends on how much of the premium covers the rental property. If you rent out the basement apartment of your home, for example, then you can only write off the portion of your homeowners insurance premium that covers the basement.

If you own and rent a separate home or condo that is not connected to your personal residence, then you can write off 100% of the landlord 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.

Matt is a Technical Writer at ValuePenguin who works on distilling the complex details of insurance into accessible advice. He previously created educational content at Grovo Learning and MarketSmiths Content Strategists. Matt's consumer-focused analysis of insurance has appeared in publications like CNBC, Yahoo Finance and the Miami Herald.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.