Is Homeowners Insurance Tax Deductible?

Is homeowners insurance tax deductible? The answer to whether or not homeowners insurance is tax deductible is kind of a mixed bag of good news/bad news.

Aside from a few exceptions that we’ll cover here, homeowner’s insurance is not tax deductible. Nor are other property insurance policies you might buy, like flood insurance or earthquake insurance.

If you work from home or run your business from home, you will be able to deduct a portion of your property insurance costs. If you’re a landlord with a rental property, you’ll be able to deduct most of your property insurance costs.

Homeowners Working From Home Can Deduct Some Insurance Costs

More Americans are working from home than ever before. The Work From Home (WFH) movement was changing the employment landscape, even before COVID-19. If you’re a homeowner now telecommuting for the first time and looking to learn how your homeowner’s insurance might relate to income taxes, you’re in the right place.

Let’s start with a better understanding of income tax deductions.

What are Income Tax Deductions?

The federal government asks you to pay taxes every year on your income. Your tax burden is a percentage of your taxable income. It’s based on your overall earnings (your tax bracket) and the size of your family / number of dependents.

Deductions are provable expenses that lower your taxable income. For individuals, they include interest paid on education loans, mortgage interest and some medical expenses. They also include some employment expenses, like the costs of relocating for work, and even smaller expenses like work shoes.

Deductible expenses are not income tax credits. They lower your taxable income. They do not credit back X dollars.

For instance, let’s say you earned $75,000 in 2022. You had to relocate permanently for work and spent $5,000 doing so. Your taxable income would decrease from $75,000 to $70,000. You’ll owe taxes on that lower amount.

If you’re wondering if a specific expense is deductible, it’s best to check with the IRS or your tax professional.

Now, let’s get back to our topic homeowners insurance tax deductible.

Homeowners Insurance Deductions for Home Offices

If you use a portion of your home to run your business, or work from home due to isolation requirements or social distancing, you may be able to write off a portion of your HO insurance. You’ll need to know:

The dimensions of your home office
The number of months or weeks you worked from home

For instance, let’s imagine that you’ve been working from home all year:

You dedicated one small bedroom entirely to work.
The dimensions of the room are 10’ x 12’, or 120 square feet.
To keep the math easy, we’ll say the entire home is 1200 square feet.
Therefore, you’ve devoted 10% of your home to office space.
You will be able to deduct 10% of your homeowner’s premium payments.

Keeping the math simple, we’ll say your homeowners insurance costs $1,000 per year.10% of $1,000 is a tidy $100.By claiming this deduction for homeowners insurance, your taxable income would decrease by $100. That might equal $25 less in taxes that you ultimately owe.

Furthermore, the IRS will apply about $5 per square foot as a direct deduction, regardless of your homeowners insurance expenses.
In this case, it would equal about $600 off your taxable income. Every cent adds up at tax time!

If this is your first time seeking deductions for your home office, know that they can add up quickly! You’ll be able to get deductions for the utilities you used in the course of business, like telephone service and internet service and equipment purchases. If you bought a new computer or desk, be sure to let your tax preparer know about it.

You can learn more about home office deductions from the IRS Publication 587.

How to Claim Deductions for Homeowners Insurance

The good news is any tax specialist will know the details about homeowners insurance and income tax. All the modern income tax software many folks use (like TurboTax) will also prompt you about your insurance costs as they relate to your income taxes.

If you’re filing income taxes by hand, yourself, you’ll need to use IRS form 1040.

Home Businesses May Need Additional Insurance

We should also point out that a home business might need additional insurance or small business insurance. If you’re storing inventory, keeping a lot of cash on hand, offering child care services, or building a laboratory in your garage, you should let your insurance agent know.

In the case of a fire, for instance, your standard homeowners insurance policy would likely cover your computer, desk, and home office needs up to a few thousand dollars. It wouldn’t cover inventory or expensive equipment.

Deducting Homeowners Insurance as a Landlord

The IRS says property insurance is considered a cost of doing business. If you’re using a property to earn income, you likely have it insured with a Landlord’s Protector Policy or at least a dwelling fire policy. You do need to report these earnings to the IRS, but you can claim deductions for your insurance costs at the rentals.

If you lease out a portion of your home – the basement, for instance – you can also deduct a part of your homeowner’s insurance. Again, you’ll need to figure out the square footage of the leased space. If the basement is 30% of your home’s square footage, then you can deduct 30% of your homeowners insurance premium.

Often, landlords can write off other insurance expenses, like an umbrella policy, for instance.

Again, we’d suggest you bring all those documents to your professional tax preparer to ensure you’re getting all the income tax advantages you deserve.

In the end, know that homeowner’s insurance isn’t directly tax-deductible unless you work from home or earn money through your property. However, with the changes in our modern employment landscape, we expect that more homeowners will be able to take these deductions in 2022 and beyond.

If you’d like to learn more about homeowner’s insurance, property insurance or small business insurance, get in touch!