Is homeowners insurance tax deductible?
Key takeaways
- Homeowners insurance is typically not tax deductible, but there are some exceptions for rental property owners or small business owners operating out of their home.
- Other home expenses such as capital gains, energy efficiency, mortgage interest, and property taxes may be tax deductible if certain criteria are met.
- Self-employed individuals or those operating a business from home may be able to deduct a portion of their home insurance premium if they meet certain requirements.
- Homeowners may be able to deduct losses from insurance claims not fully covered by their provider if the property loss occurred in a federally declared disaster area.
As a homeowner, you likely have questions while navigating your home insurance premiums and broader finances, including your taxes. You may wonder whether you can deduct your home insurance on your tax return to save money. Overall, while there are specific cases where you can write off your premiums, such as if you own a rental property or manage a home office, home insurance is typically not tax-deductible. Bankrate’s expert insurance editorial team dives deeper into when home insurance may be tax-deductible and what considerations to keep in mind while planning your finances so you can navigate homeownership with confidence.
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What is a tax deduction?
A tax deduction is applied to a person or organization’s tax return to lower their taxable income. These deductions are typically available if the person or organization has qualifying expenses throughout the year. When preparing their tax return, individuals with qualifying expenses may choose to take a standard deduction or itemize deductions. If the person or organization chooses to itemize deductions, deductions are subject to limitations.
According to the IRS, the following expenses qualify for itemized deductions:
- Healthcare expenses, including medical, dental, and prescription drug bills
- Mortgage interest
- Property taxes
While some special circumstances may allow homeowners insurance deductions on one’s tax return when they’re considered job-related expenses, homeowners insurance is not generally considered a qualifying deduction by the IRS.
Is home insurance tax deductible?
If you use your home as your primary residence, your home insurance is generally not tax-deductible, even if you itemize your deductions on your tax return. However, if you purchase a policy to protect your investment on a rental property you own, your home insurance premiums can usually qualify for a deduction.
While home insurance protects your home against damages, another type of insurance — mortgage insurance — protects the lender if you default on the loan. For more information, use this IRS’ tax tool. If you need help, consult a tax professional.
Are there home tax deductions for small business owners?
Yes, there are home tax deductions for small business owners. Homeowners and renters who use a room or part of a room exclusively for business purposes may qualify for them. The deduction may include a portion of the related home insurance premiums, mortgage interest, repairs, utilities, depreciation, maintenance and/or rent.
In order to qualify, the home must be the primary residence for the taxpayer and the room must be exclusively used for business purposes. There is a simplified method that may be used for the home office expense deduction, which is $5 per square foot with a cap of 300 square feet, or a $1,500 deduction. The regular method is calculated based on the percentage of the home used for business purposes.
Are there tax deductions for landlords?
The other qualifying entity for homeowners insurance tax deductions is landlords. If you receive rental income from your home, you may be able to deduct a portion of your homeowners insurance policy on your tax return for the area of the home being used as a rental.
The same rules apply here as they do for home offices: take the square footage used as rental space and divide it by the total square footage of your home. Apply that percentage to your premium to find the total qualifying deductions for your homeowners insurance policy.
If you own and rent out several properties and the properties are only used as a source of rental income, you may be able to deduct the total amount of homeowners insurance from your tax return. Consult with a Certified Public Accountant (CPA) to understand whether or not your home insurance is tax-deductible for your specific circumstances.
What are common home tax deductions?
While home insurance is not generally tax-deductible, other home expenses are:
- Capital gains: If you sell your home and profit from the sale, you may be able to avoid paying taxes on the gain through the capital gains tax deduction. Single filers can exclude up to $250,000 and married filers can exclude up to $500,000 in profit from the home sale. You must have owned the home and used it as your primary residence for at least two of the last five years – and not taken the same deduction of another home sale in the same timeframe – before the sale date to be eligible.
- Energy efficiency: Making your home energy efficient lowers your energy bills and could provide a tax deduction on your primary residence. The tax deduction amount varies by improvement and is a maximum of $500 per item. Installing renewable energy also has different tax credit maximums under the Consolidated Appropriations Act of 2021, offering up to 30 percent in tax credits for renewable energy systems.
- Mortgage interest: If you itemize your deductions, you may be able to fully deduct the amount you pay in mortgage interest each year on a secured debt. The amount you can deduct varies by the date you took out your mortgage, how much you financed and how the proceeds are used.
- Property taxes: Typically, state and local real property taxes on primary and secondary residences are deductible if you itemize your tax return. For homes purchased on or before December 15, 2017, the maximum amount of debt permissible for interest deductions is $1,000,000; or $500,000 if married filing separately. Homes purchased after that date have a debt limit of $750,000; or $375,000 if married filing separately. If you rent out the second home, restrictions apply.
- Capital expenses: When you make home improvements for personal reasons, the expenses are generally not tax deductible. However, if the improvements you make are medically necessary for yourself, your spouse or dependent, you may be eligible for capital expense deductions. The necessary medical improvements may include building entrance or exit ramps, widening doorways, installing porch or interior lifts, or modifying hallways and kitchen cabinets.
Types of tax forms for homeowners
For homeowners navigating the tax process, it’s crucial to understand the various tax forms homeowners might encounter for deductions and reporting income or losses related to property ownership.
| Tax form | Form type | Use case |
|---|---|---|
| Schedule A (Form 1040) | Itemized deductions | Typically used by homeowners to itemize deductions such as mortgage interest, property taxes and in certain cases, disaster losses that are not covered by insurance. |
| Schedule C (Form 1040) | Profit or loss from business | May be used by homeowners who operate a business from their home or who are self-employed (whether or not they work from home), allowing them to deduct a portion of their home’s expenses related to the business activity. |
| Schedule E (Form 1040) | Supplemental income and loss | Often utilized by homeowners who rent out part or all of their property, to report rental income and deduct applicable expenses such as maintenance, insurance and depreciation. |
Depending on the homeowner’s situation, other forms may come into play, such as forms related to energy-efficient upgrades or casualty losses. Homeowners should consult with a tax professional to ensure they are using the correct forms and making the most of potential deductions.
Frequently asked questions
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According to the IRS, the itemized deduction for mortgage insurance premiums expired for 2022. Mortgage insurance is different from homeowners insurance premiums.
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If you’ve experienced a loss on your home and your insurance carrier denies your claim, you may not be out of options: You may be able to deduct the expenses as a casualty loss on your tax return. However, this deduction is only available if the property loss occurred in a federally declared disaster area.
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If you take the standard deduction, you cannot deduct property taxes on your tax return. When you itemize deductions, you may qualify to deduct certain home expenses, such as real estate and personal property taxes.
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Certain home expenses may be tax deductible if you meet underlying criteria. For instance, you may be eligible to deduct mortgage and home equity loan interest, discount points, property taxes, necessary home improvements, home office expenses, capital gains and mortgage insurance on your taxes. Working with a seasoned tax professional can help you identify what is tax deductible so you can maximize your return.
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Self-employed individuals and home-based business owners might have the opportunity to write off a portion of their homeowners insurance. This deduction is contingent upon meeting certain conditions. You can contact a tax professional to determine if this option aligns with your specific situation.
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