Every year at tax season, many homeowners wonder if they can deduct their homeowners insurance expenses from their tax obligation. In general, homeowners insurance and associated premiums are not tax-deductible — even if your premium payments are included in your mortgage. According to the Internal Revenue Service (IRS), homeowners insurance is not considered a deductible expense.
While most homeowners won’t be able to itemize their insurance payments on their tax return, there are a few special cases where this may be possible. For instance, small businesses run out of your home may be eligible to deduct insurance expenses. However, even in these special circumstances, you will 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?
Small business owners are one of two qualifying entities that may deduct homeowners insurance from their tax returns. However, only certain small businesses qualify and there are limits on the amount of homeowners insurance that can be deducted.
For example, if you run a small content marketing business out of your home, your homeowners insurance policy may cover up to a few thousand dollars to protect it. If this is the case, you may be able to deduct the square footage of office space used for your home business as the percentage of total home square footage. That percentage then gets applied to your homeowners insurance premium, resulting in your tax deduction amount.
Businesses must be quite small to qualify for a homeowners insurance tax deduction. Larger businesses — such as a hair salon or daycare service — may not be covered under your homeowners insurance policy and will instead require you to obtain a commercial insurance policy. These policies are not considered deductible expenses by the IRS.
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.
Frequently asked questions
Can I deduct mortgage insurance premiums from my tax return?
Mortgage insurance and homeowners insurance are different things. While homeowners insurance protects your property, mortgage insurance protects you in case you are unable to make your mortgage payments. Mortgage insurance premiums may be deducted from both your personal home and rental properties; however, income restrictions apply.
Can I deduct losses for insurance claims not totally covered by my provider?
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.
Can I deduct property taxes if I take the standard deduction?
Real estate taxes, like mortgage insurance premiums and personal property taxes, are itemized deductions. If you take the standard deduction, you cannot deduct property taxes from your tax return.
What tax deductions are available for those affected by the COVID-19 pandemic?
Unfortunately, there are no tax benefits available for those working from home due to the COVID-19 pandemic. However, if you have a small- or mid-sized business, you may be able to qualify for certain tax benefits for businesses, such as paid leave for workers.