When tax season nears, many people start to worry about what they may owe in taxes, and, in turn, find themselves wondering what they can deduct in order to lower their taxable income. If you’re one of them, you may be wondering whether you can qualify for a homeowners insurance tax deduction to cut down on your tax bill.

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In general, that’s probably not the case. Homeowners insurance and the associated premiums typically aren’t tax deductible, but they may be in some cases. For example, there may be an opportunity for homeowners insurance tax deduction if you’re running a small business out of your home or for other business-related reasons. However, you will still need to meet specific requirements to deduct insurance expenses from your tax return.

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 only taken for amounts surpassing the standard deduction limit.

According to the IRS, the following expenses qualify for itemized deductions:

  • Healthcare expenses, including medical, dental, and prescription drug bills
  • Home office and job-related expenses
  • 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 not tax-deductible, even if you itemize your deductions on your tax return. The only time the IRS allows a tax deduction on home insurance is if the premiums are paid on rental properties.

Home insurance should not be confused with mortgage insurance. Mortgage insurance is required on some loans to protect the lender if you default on the loan. This coverage may be tax-deductible if you itemize your tax return and meet certain income requirements.

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 deductibles 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 homeowners 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% 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. The limit you can deduct is $10,000; or $5,000 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.

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