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 a portion of your financial losses if your home is damaged in a federally recognized disaster. Homeowners who pay for private mortgage insurance may also be able to write off their costs.

When Homeowners Insurance Premiums Can Be Deducted From Taxes

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. And this applies to all types of personal house insurance, including hazard coverage, liability and more specific forms such as earthquake insurance or flood insurance—you can't write any of them off on a personal home.

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

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 house 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 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 someone who runs a small stationery business out of their apartment, most homeowners insurance companies would cover the related business materials like paper, computers and pens 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 insurance policy.

Deducting Homeowners Insurance Losses: Only in a Disaster

Starting in the 2018 tax year, you are generally unable to 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 tax-eligible disaster area that was directly caused by the disaster. For example, in 2017, the only disasters that qualified were Hurricane Harvey, Hurricane Irma, Hurricane Maria and the California wildfires.

If you experience a financial loss due to a federally declared disaster and file an insurance claim for your loss—whether it is for $5,000 or $50,000—you cannot write off the amount of the claim settlement on your tax return. 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.

Whatever the value of the property damaged, the owner must subtract $500 per incident. 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. So if you spend additional money to improve your house to be in 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 $4,500 of the loss, according to the formula specified by the IRS. But if you spent $20,000 total 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

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% 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 returns.

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 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 percentage of your homeowners insurance premium 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 policy covers the same home as their landlord coverage, they should be able to deduct the premiums for an umbrella policy.

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