Tax Deductions for Homeowners Insurance

In most cases, homeowners insurance premiums aren't tax-deductible. There are times when you can write off these payments, however. Here are all the important details of those situations.

image of income tax return

Tax season is stressful enough as it is. Toss in trying to figure out how, or even if, you can deduct homeowners insurance expenses from your next return and it can become even more so.

The key word here is "can." How so? Well, a little education goes a long way toward helping you understand which aspects of your home insurance policy you're allowed to write off in this way and which ones you aren't.

Although a certified tax preparer obviously will give you the best advice in this kind of situation, the article you're reading now will provide you with the basics of when can and when you can't deduct home insurance payments from a tax return.

The IRS and Home Ownership Tax Deductions

The Internal Revenue Service (IRS) lets Americans write off a number of home-related expenses, so it only makes sense that a lot of people assume they can write off some or all of what they spend on homeowners insurance.

A few examples of the deductions many U.S. property owners put to use while working on their annual returns:

  • Mortgage interest payments
  • Mortgage points
  • Property taxes

As for home insurance premiums, they're usually rolled into your mortgage payments (for more about that, read our article, "Homeowners Insurance and Mortgage Payments"), so they must be deductible, too, right?

Unfortunately, that's not the case. Or at least it isn't usually the case. In fact, with few exceptions, homeowners insurance premiums are off-limits come tax time.

Why? You'll have to chat with an IRS agent if you want a solid answer. The gist, though, is the federal government treats these payments like they're any other household expense.

In that light, it makes sense that you typically can't write off your home insurance costs. You can't do that with your utility payments or repair bills, so why would you be able to do it with your homeowners premiums?

So When Can You Write Off Homeowners Insurance Premiums?

You might have noticed that a couple of concessions were offered up in the last few paragraphs.

Specifically, it was said that "with few exceptions" home insurance payments are nondeductible for tax purposes. Also, it was said that you "usually" can't write off these expenses.

That's because there are times when homeowners can deduct them from their federal tax returns.

Here are those situations and everything you need to know to benefit from them during tax season.

You Have a Home Office

Do you work from home or use part of your house for business? If so, you may be able to write off a portion of your insurance payments the next time you go to file your taxes.

Actually, you may be able to write off at least a portion of some of your other home expenses, too. A few examples: utility payments, mortgage interest, real estate taxes--even some repair and improvement costs.

The focus of this article is home insurance and taxes, though, so let's stick to that topic here.

As you might expect, the federal government--or, more specifically, the IRS--make you jump through a hoop or two before you can qualify for what a lot of people call a home-office deduction.

In particular, the IRS only lets you use this deduction if you meet the following requirements:

  1. You regularly use part of your house (or condo or apartment) exclusively for work.
  2. You consider your home, or a separate structure on your property, to be your principal place of business.

If you can't prove your home is your principal place of business, by the way, you can still meet this IRS requirement if you regularly meet with business customers or clients in your home (or in a separate structure on your property).

In case the text above doesn't make it clear: you can't write off a portion of your home insurance payments (or other home expenses) in this way if you only occasionally work on your kitchen or dining table.

That said, your office can be a studio, a workshop, or even a converted garage.

Assuming you meet the IRS' requirements, what else do you need to know? Probably the most important detail is that the amount you write off has to match up with the size of your workspace.

In other words, if your workspace takes up 20 percent of your home's square footage, you can deduct the same percentage of your homeowners insurance premiums from your federal tax return.

Another way to say this is that if 20 percent of your housing expenses go toward your home office, you can deduct that same amount of your insurance payments the next time you do your taxes.

Something to keep in mind here: you don't need to own or live in a freestanding house to take advantage of this deduction. As was suggested earlier, condominiums and apartments count, too. As do mobile homes and houseboats, according to nolo.com. For a mobile home or houseboat to qualify, though, it has to include space for cooking and sleeping. (Read our article about mobile home insurance.)

On a related note, many experts will tell you that if you work from home, or if you have a home-based business, you should have more than a standard homeowners insurance policy.

Standard policies won't cover all of your business expenses, nor will they cover liability losses tied to your business. For that kind of protection, you at least need to invest in an endorsement. Or you can buy individual business insurance.

To learn more, check out this article about homeowners insurance and home-based businesses.

You Rent Out Part of Your Home

There are positives and negative to renting out part of your home (even just a single room).

On the positive side, there's the extra income. On the negative side, there's the fact that the extra income is taxable and must be reported to the IRS.

Thankfully, at least one more positive helps outweigh the negative mentioned above. What is it? It's that such rentals allow you to write off a portion of what you spend on home insurance premiums on your yearly tax return.

According to The Christian Science Monitor, those payments are considered business expenses and, like most other business expenses, they're tax-deductible for landlords (even part-time ones).

As was the case with the home-office deduction discussed in the last section, however, you only can write off part of your homeowners insurance payments when you rent out a room or a portion of your house (or condo).

Again, say you rent out the equivalent of 15 percent of your home. That's the same percentage you can write off while preparing your federal tax return.

Actually, the IRS allows property owners to calculate this kind of deduction in another way, too, if they so choose. You'll mainly want to go this alternate route if the room you rent out is one of a number of rooms that are about the same size.

For example, if your home has three rooms that are of similar size and you rent out one of them, you can deduct a third of your home insurance premiums from that year's tax return.

Basically, you want to go with whichever method gives you the biggest deduction.

By the way, the only time the IRS lets you write off all of your homeowners insurance payments is when you rent out an entire home, condo, or other piece of property. The same is true if you own several properties and those properties are used just for rental income.

You Suffer a Disaster-Related Loss and Your Insurance Doesn't Cover it

In the not-so-distant past, homeowners could write off something known as "casualty losses" while preparing their federal tax returns.

As for what usually constitutes a casualty loss, here are two examples:

  • Fire or wind damages your home. Contractors estimate it'll take $20,000 to repair the damage. Unfortunately, your insurance policy pays out just $15,000.
  • Someone steals a TV and a laptop from your home. Combined, those possessions were worth about $7,500. Yet your insurer reimburses you only $5,000.

In the first situation, you used to be able to deduct the $5,000 loss from your next federal tax return. And in the second situation, you could write off a good portion of the $2,500 loss. (How much you can write off depends on your homeowners policy's deductible and another amount determined by the IRS. Typically, the latter figure equals $100 per incident plus 10 percent of your adjusted gross income.)

Actually, you can still do the above when you file your 2017 tax return. You won't be able to do them when you file your 2018 tax return in 2019, however, thanks to the tax reform bill President Trump signed into law late last year.

Moving forward, you'll only be able to claim a casualty loss if the loss occurs in an area that's declared a federal disaster area.

Worried that someone might steal your stuff? Read our article about how to protect your valuables with homeowners insurance riders. And don't forget to create an inventory of your possessions for home insurance claims.

You Pay for Private Mortgage Insurance 

OK, so this bullet point has nothing to do with homeowners insurance. Still, private mortgage insurance (also called PMI) is a type of insurance that many people who buy houses have to pay for, so it's worth discussing here.

If this is the first you're hearing of PMI, it's a type of mortgage insurance that protects the lender in the event a homeowner stops making payments on his or her loan. Someone buying a home often has to pay for PMI if he or she can't afford a down payment of at least 20 percent.

Not just anyone can write off these premiums, unfortunately. In order to do this, you have to meet two requirements. One is that your PMI contract must have been issued after 2006. The other is that your adjusted gross income (or AGI) needs to fall below a certain amount. (According to TurboTax, your AGI can't surpass $109,000--or $54,500, if you're married and filing separately. Also, the IRS will reduce your deduction if your AGI exceeds $100,000, or $50,000 for those married and filing separately.)

Should you want to make use of this particular deduction, you might want to chat with a certified tax preparer. Not only will they know for sure if you can deduct your PMI payments from your next federal tax return, but they'll also tell you if you qualify for other write-offs as well.

Frequently Asked Questions

Q: Are home insurance premiums tax deductible?

A: Sometimes, yes, but not usually. In general, the IRS treats these payments like any other household expense. And since you often can't write off household expenses, you often can't write off home insurance premiums either.

Still, there are times when the IRS lets homeowners deduct these insurance costs from their federal tax returns. The three most common examples: when you have a home office, when you rent out part of your house, and when you suffer a loss your insurance policy doesn't cover.

Scroll up to learn more about each of those situations. You'll also learn about another situation related to home ownership and insurance that can be written off during tax season.

Q: When can I deduct homeowners insurance payments from my tax return?

A: As explained earlier, you can deduct home insurance premiums from your federal tax return in these three circumstances:

  • you have a home office
  • you rent out part of your house
  • you suffer a loss your insurance policy doesn't cover

You have to meet certain requirements to write off your premiums in this way, however. And even then, you'll likely only be able to write off a portion of your premiums rather than all of them.

For specific details on each of these situations, read the sections devoted to them above.

Q: Can I still write off a casualty loss for tax purposes?

A: If you're preparing to file your 2017 federal tax return, the answer is yes. When you go to file your 2018 tax return in 2019, however, the answer most likely will be no.

That's because the new tax reform law says casualty losses for things like property theft or fire or wind damage are no longer deductible. 

The only way you can claim a casualty loss starting with the 2018 tax season is if a presidentially declared disaster, such as an earthquake or hurricane, causes it.

Speaking of which, here's all the information you need to get hurricane home insurance or earthquake insurance.

Q: Can I deduct my PMI premiums from my tax return?

A: In some cases, yes, you can write off your PMI payments at tax time.

This isn't true for all homeowners who have private mortgage insurance, though. You can't deduct these premiums from your federal return if your PMI contract was written before 2006, for example. Also, your adjusted gross income can't exceed $109,000--or $54,500, if you're married and filing separately.

Not entirely sure if you're eligible for this deduction? Have a chat with an account or a tax preparer.

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