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Tax Deductions for Home Insurance

Standard homeowners insurance policies for your primary residence do not qualify as tax deductions. To deduct your homeowners insurance, you need to be using the home as a rental property or have a home office.

However, this does not mean homeowners are entirely out of luck when it comes to tax benefits. There are still many different home-related expenses you may be able to deduct on your taxes. Learn more about the ways you can leverage your home’s costs to reduce your tax burden in this article.

Criteria For Homeowners Insurance Tax Deductions

While the typical homeowner cannot deduct their homeowners insurance premiums on their taxes, there are a few situations where it is possible:

  • Landlord deduction: You may be able to deduct your insurance costs if you rent out the property to tenants. The IRS considers this a necessary expense to maintain the property, so it allows you to write this off as a business expense.
  • Home business deduction: You have a home office where you conduct business.
  • Loss deduction: You have suffered a property loss or theft in a federally declared disaster area.

If at least one of those situations are applicable to you, you are likely eligible for home insurance premium tax deductions.

Landlord Insurance Tax Deductions

If you own several rental properties, your home insurance takes on a different tax status. Unlike the policy for your primary residence, landlord insurance premiums are fully deductible as business expenses.

This deduction covers different types of policies protecting your rental property, including fire, theft, liability, and even flood insurance. Essentially, the IRS recognizes landlord insurance as a necessary cost of generating rental income.

How to Claim the Deduction

You can use either Form 1040 or 1040-SR, Schedule E, Part I to deduct your landlord insurance. On these forms, you should list your total income from the business as well as expenses and depreciation. Your landlord insurance counts as an expense.

Remember to keep detailed records of your policy and payment receipts for potential IRS inquiries.

Home Business Owner Tax Deductions

If you’re self-employed or run your own business from your home, you can often deduct part of your home’s expenses on your taxes. You have to use your home in one of the following ways to be eligible:

  • Use your home regularly for your business dealings
  • Meet clients, patients, or customers in your home
  • Have a separate structure on your property for work
  • Store products or inventory in your home
  • Rent your home
  • Use your home as a daycare facility

The catch is that you cannot deduct expenses for your entire home. Instead, you may only deduct expenses for the part of your home that you’re using to conduct business. In addition to insurance, eligible expenses may include real estate taxes, mortgage interest, maintenance, utilities, rent, and more.

How to Claim the Deduction

You can use Form 8829, Expenses for Business Use of Your Home to calculate what portion of your home expenses is deductible. You need to calculate the percentage of your home you use for business, which might require knowing square footage.

Once you fill out the form, you submit it with your Schedule C (Form 1040). Attach supporting documentation like your home office floor plan and insurance policy details.

Property Loss or Theft Claim Deductions

If you experience uncompensated losses due to theft or federally declared disasters, those amounts can be itemized deductions. However, you cannot deduct any losses that were already covered by insurance unless you reduce the loss by the expected amount of reimbursement.

Qualifying federally declared disasters might include things like:

Having thorough documentation of any loss and repair costs is crucial to claiming these deductions. The loss also needs to have been sudden and unexpected, meaning normal wear and tear does not qualify as a deduction-eligible loss.

How to Claim the Deduction

You can file a casualty or theft loss as an itemized deduction on Schedule A (Form 1040), Itemized Deductions or Schedule A (Form 1040-NR). The IRS requires you to subtract $100 from each event that occurred (after subtracting insurance reimbursement or salvage value).

Then, add up the total losses and subtract 10% of your adjusted gross income from that total. The resulting number is your allowable casualty and theft losses for the year. 

Other Tax Deductions Home Owners Should Know

Homeowners insurance is just one piece of the tax deduction puzzle. While mortgage interest and property taxes are common deductions, your home harbors a wealth of other tax-saving opportunities waiting to be explored. Let’s navigate these lesser-known avenues, helping you optimize your homeownership tax benefits.

Property Tax Deductions

The IRS typically allows you to deduct up to $10,000 of combined state and local taxes each year (or $5,000 if you’re married but filing separately). In addition to your property taxes, this $10,000 limit includes any income taxes and sales taxes you paid as well. Typically, eligible property taxes include any state or local taxes charged based on your property’s real value that are intended to benefit general public welfare.

To benefit from this deduction, you need to itemize your tax return instead of taking the standard deduction.

Mortgage Deductions

You can deduct the interest you pay on your home mortgage. The IRS limits these deductions to the first $750,000 of your loan (or $375,000 if you’re married but filing separately). The limit is higher (up to $1 million or $500,000 if married filing separately) if you bought your home before December 16, 2017.

To be eligible for this deduction, your mortgage must be a secured loan in which you have an ownership interest.

Energy Efficiency Deductions

If you improved your home’s energy efficiency, you may be eligible for up to $3,200 in tax credits. The IRS provides up to a credit of 30% on home energy audits, residential energy property expenses, and qualified energy efficiency improvements.

For example, if you make energy-efficient home improvements, you can claim a maximum of $1,200. Here’s a list of other maximum credits by improvement:

  • New doors: $250 each, $500 total
  • New windows: $600
  • Home energy audits: $150
  • Qualified heat pumps or biomass stoves or boilers: $2,000

The good news is that this program is going on until 2033, and you can claim up to $3,200 in credits each year as long as you keep making improvements.

Medical Renovation Deductions

You may be able to partially deduct necessary home modifications for medical reasons, such as installing ramps or widening doorways. Consult your doctor and tax advisor for qualifying improvements.

If you’re eligible, you can deduct any part of the expense that exceeds 7.5% of your adjusted gross income. As an example, imagine you install a stair lift for $5,000 due to a documented mobility issue. If your adjusted gross income was $50,000, 7.5% of that would be $3,750. Therefore, you may be able to deduct $1,250 on your tax return.

Home Sale Deductions

Typically, you are not allowed to deduct transfer taxes, stamp taxes, or other related fees and charges directly on your taxes when selling a home. However, you can add up other expenses to reduce the profit you made on your home.

The IRS charges capital gains taxes if you make more than $250,000 in profit when selling a home. Things like realtor fees, advertising fees, legal fees, and other selling expenses can reduce your profit and limit the potential tax you have to pay.

You can also deduct real estate taxes for the months you did not own your home. You can use Form 1099-S to help you calculate this.

Putting It All Together

Maximizing your home’s tax deductions may take a few extra steps when preparing your tax return. For example, you have to create a list of itemized deductions rather than just taking the standard deduction. However, it can be worth it, especially if you qualify for landlord insurance deductions or business expense deductions.

There are plenty of other deductions to consider as well. To better understand them all, consider working with a tax advisor for personalized guidance.

Frequently Asked Questions

Yes, if a dedicated portion of your home is used for business purposes (like a home office), you can deduct a proportional share of your insurance premium based on the square footage used for business. Consult your home’s floor plan to determine what percentage of space you use for your business. This is the percentage of your insurance you can deduct on your taxes.

If your insurance completely covers a claim, there’s no deduction to claim. The government no longer considers that a loss because you’ve received reimbursement for it. However, any unreimbursed losses exceeding $100 due to federally declared disasters can still be itemized as deductions.

If you rent out your vacation home for more than 14 days a year, you can deduct a proportional share of your insurance premium, mortgage interest, and other expenses based on the rental usage. What you can deduct changes based on whether the property qualifies as a personal residence (that you sometimes rent out) or a dedicated rental property (that you live in less than 14 days a year). Consult your tax advisor for specific rules and limitations.