Homeowners insurance and taxes: is it deductible?

When it comes time to file your income taxes, you want to explore every possible way to save money. If you're a homeowner, chances are you have wondered whether or not your home insurance premiums are tax-deductible. In short, payments toward your personal home insurance policy are not tax-deductible.

However, there are some insurance-related ways to receive a tax break. Read on to learn more about the types of insurance that are tax deduction-eligible.

If you have specific questions about your tax situation, please contact a tax professional.

What is a tax deduction?

The Internal Revenue Service (IRS) assesses your overall income over the previous tax year when determining how much you owe. However, you have the opportunity to deduct some of your taxable income when filing, giving you the chance to write off certain living expenses and save money on your amount owed.

There are two different types of deductions you can claim: a standard deduction and an itemized deduction.

• A standard deduction is a fixed dollar amount determined by your filing status.
• Itemized deductions are more specific, listing individual expenses such as charitable giving or medical costs. In some cases, itemizing your deductions can lower your tax bill, as you break out specific expenses in order to more accurately show how much you have spent over the previous year.

Tax-deductible homeowners insurance costs

Homeownership can be expensive. While insurance payments on personal homeowners insurance policies are not eligible deductions, there are a few cases in which home insurance costs can be claimed as deductions, thereby reducing your tax bill:

Homeowners insurance tax deductions for rental properties

If you rent out an extra room, garage apartment, or second home, you may be able to deduct those insurance payments from your taxes. Generally, insurance premiums paid to cover your rental units can be claimed as a tax deduction since they are considered business expenses. Your landlord insurance covers damage to the rental property and also provides liability coverage to protect your personal assets. This coverage — along with any insurance payments covering employees related to your rental business — can be claimed as an itemized deduction.

Home office tax deductions

If you are self-employed or your office is part of your home, you may be eligible for a home office deduction. Many homeowners insurance plans provide the option of adding an endorsement to cover business equipment. The IRS allows citizens to claim certain expenses and equipment used for business purposes as itemized deductions.

There is a simplified method of filing a home business deduction determined by the square footage of your office space, but this does not take into account your individual insurance expenses. The standard method allows you to itemize specific expenses, including insurance costs, utilities, repairs, and more. This method also requires you to figure out what percentage of your home is devoted to business activity.

Mortgage insurance tax deduction

Banks that provide loans to home buyers want to protect their interests. Therefore, many will require homeowners who don’t make a 20% down payment to carry insurance that protects them in the event that the homeowner defaults on their payments. This is known as mortgage insurance. The amount you pay in private mortgage insurance (PMI) can be claimed as an itemized tax deduction, though there are some restrictions if you make more than a certain amount per year.

Other home expenses that can reduce your tax bill

Owning a home comes with some tax implications. Property taxes can be quite expensive, depending on where you live. But there are some ways to reduce the amount of taxes you owe. Have a look at a few other ways to save below. 

• Mortgage interest tax deduction: If you bought a home after December 15, 2017, you are allowed to deduct the interest paid on your mortgage insurance premiums up to the first $750,000 of the loan. If you bought your home before this, that limit could be even higher. You simply need to keep track of the interest you paid and file it as an itemized deduction.
• Home improvements for health reasons: Updates to your home that are necessitated by health, such as entry ramps or railings, can be deducted on your taxes.
• Property tax deductions: Homeowners can typically deduct up to $10,000 in property taxes.

Homeowners insurance tax considerations

If you want to get the most out of your tax return, it pays to do some research. Consult with your home insurance company and tax experts to figure out the best ways to save. If you’re still looking for a great homeowners insurance policy, The Zebra can help by providing accurate quotes from a number of top companies, helping you find the best policy for your needs.