Taking advantage of all the tax deductions available to you can save you money every year. Although home insurance premiums aren’t tax deductible for most people, there are a handful of tax deductions for homeowners that you may be able to take advantage of. For example, there are tax breaks available to folks who work out of their houses, rent out their homes in part or in full, experience a loss in a federally declared disaster or have a mortgage.
Tax deductions for homeowners on…
Can you deduct homeowners insurance on taxes?
If you only use your home as a place to live, you cannot get a tax write-off for your home insurance costs from the Internal Revenue Service (IRS). However, if you use your home for something other than a residence, such as using part of it as a home office, running a home business out of it or renting part of it out, you may qualify for tax deductions on your home insurance.
Because mortgage payments are made up of smaller payments like your loan payment, homeowners insurance and property taxes, there is no simple answer as to whether mortgage payments are tax deductible. As far as deductions on your homeowners insurance goes, you’ll need to have a home business or home office to qualify for write-offs.
Tax deductions for home offices and business
If you have a home office or business, you can deduct a portion of your homeowners insurance premium. You can write off a percentage equal to the percentage of your home you use for a home office or business.
Example: say 10% of your home is used to run a home business. You’d be eligible for a 10% write-off on your homeowners insurance premiums come tax season. You can think of it as how many square feet in your home are dedicated to a home office or business relative to your total home size. So if you have a 500-square-foot room that you use as a home office in a 2,000-square-foot house, you could qualify for a 25% deduction on your homeowners insurance.
The space you use for a home office or to run a business must be used exclusively for that purpose. It does not need to be a dedicated room, however — your home office can be the corner of your bedroom. But if you have a guest bedroom that you occasionally use to work from home, you may not qualify for a tax deduction.
Deductions for your home office or business can also extend to your cost of utilities, such as gas and electricity. For instance, say your business requires a computer setup that uses lots of electricity. You may be able to deduct the portion of your electricity bill that goes toward powering it.
Although you may be eligible for write-offs related to your home business, home businesses often increase the cost to insure your home. That's because home businesses frequently have items which are expensive to replace, such as computers, printers and legal documents. So while tax deductions are available, people with home businesses are likely to have higher homeowners insurance premiums.
Tax deductions for rental properties
There are tax deductions available to homeowners who rent out part or their entire home, because a rental property is a type of business. This includes write-offs for homeowners insurance, as the insurance on your rental property is a business expense.
You can deduct the proportion of your homeowners costs that cover your rental property. So, if 40% of your homeowners insurance policy goes toward protecting the portion of your home that you rent out, 40% of your homeowners insurance premium expenses are tax deductible.
Additionally, if you pay for some of your tenants’ utilities, like gas or electricity, you can write these costs off as a business expense.
Are repairs after a loss tax deductible?
If you suffer a major loss to your home after a natural disaster, you may be able to deduct some of the costs of repair. There are two conditions which must be met in order to be eligible, however.
- The loss must be in a federally declared disaster area.
- You have out-of-pocket costs in returning your home to its pre-loss condition.
If you meet these two criteria, you can write off some of your out-of-pocket costs to repair your home (including your deductible). The amount you can write off is: your out-of-pocket costs, minus $100 and 10% of your adjusted gross income (AGI).
For example, say you have $10,000 of out-of-pocket costs after a federally declared disaster and an adjusted gross income of $50,000. Ten percent of your AGI is $5,000. That means you’ll be able to write off $4,900 on your taxes — we work out the math below.
|Step one||Find out-of-pocket cost||$10,000|
|Step two||Subtract 10% of AGI||– ($5,000)|
|Step three||Subtract IRS required fee||– ($100)|
|Final||Tax deductible amount||$4,900|
The tax write-off does not apply to funds reimbursed by your insurance company. So if you have a $10,000 loss and your insurance policy pays out $4,000, your out-of-pocket costs would be $6,000.
Tax deductions on mortgage payments
While a minority of people will be able to make tax deductions on their homeowners insurance premiums, many people who have a mortgage are eligible for tax write-offs related to their mortgage payments. A mortgage payment typically has several components, including:
- The principal loan amount
- The loan interest
- Homeowners insurance premiums
- Property taxes
- Mortgage insurance (PMI or MIP)
With all of these smaller expenses, what’s tax deductible and what isn’t can be confusing. We’ve already gone over when you can deduct homeowners insurance premiums, but your property taxes, loan interest payment and mortgage insurance may also be tax deductible.
Mortgage payments are the biggest monthly expense for many people, so finding ways to reduce these payments can lighten the burden. For additional ideas on reducing the cost of owning a home, check out our guide on saving money on homeowners insurance.
Frequently Asked Questions
Q: Is homeowners insurance tax deductible?
A: Sometimes. If you only use your home as a residence, your home insurance premiums are not tax deductible. However if you have a home office or business, the story isn’t so simple.
Q: Are there tax deductions for homeowners?
A: Yes, there are a handful of tax breaks available to homeowners. While deductions on your homeowners insurance are only available in special cases, homeowners can deduct the cost of their loan interest, property taxes and mortgage insurance, among other available deductions.
Q: Is homeowners insurance tax deductible for a home office?
A: Yes! As long as you have a space in your home which only serves a business purpose, you may be eligible for a tax break on your home office.
Q: Is condo insurance tax deductible?
A: Condo insurance is generally not tax deductible. However if you have a home office or business in your condo, or rent part of it out, you can qualify for condo insurance tax write-offs.
Q: Is flood insurance tax deductible?
A: Usually, no. But there are exceptions if you suffer a loss in a federally declared disaster.
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