Are Homeowners Insurance Premiums Tax Deductible?

April 25, 2018


Owning a home often means large tax deductions. While you can deduct your real estate taxes and the interest you pay on your mortgage, you cannot deduct the homeowner’s insurance premiums you pay. However, there are a few other things that tie into the insurance that you should know understand, as they may be able to be written off.

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The Reasons You Can’t Deduct Homeowner’s Insurance Premiums

First, let’s look at the reason why homeowner’s insurance premiums are not tax deductible. It’s because you use your home for personal purposes – or at least most homeowner’s do. Even if it’s a vacation home or second home, it’s still a personal home. Consider it like the other bills you pay to maintain your home – you have to pay them or you would not be able to live in the home.

Deducting Homeowner’s Insurance Premiums for a Home Business

Now, if you use part of your home for a home business, you may be able to deduct the insurance premiums you pay. However, you cannot deduct the entire amount that you pay. You’ll have to prorate the premiums based on the part of your home that you use for your home office.

Let’s say for simplicity’s sake that you use 50% of your home strictly for your home business. You can then deduct 50% of many of the bills that you pay to run your home on your taxes. Among these deductions is your homeowner’s insurance premium. This means you can write off 50% of the premiums you paid that year on your taxes.

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Before you take the write-off though, make sure your home business qualifies for the deductions. The IRS requires that the room be used exclusively for business purposes. If it’s used for any personal reasons, you cannot deduct 100% of the costs for that room.

A Home Office Might Require Additional Insurance

You may also want to purchase additional insurance if your home business is anything risky or it puts your home at risk. Certain homeowner’s policies exclude home businesses in certain industries or they limit the amount of the home you can use for the business.

Depending on the business someone is running out of their home, a policyholder might find their homeowner’s insurance won’t cover the total value of the business property on site, or won’t cover the type of business they run at all. Any type of risky business may require additional insurance before the insurance company will include it in the policy.

Write Off Losses Not Covered by Insurance

Unfortunately, losses that you experience are not able to be deducted on your tax returns if you file the claim with your insurance company. However, if your insurance company doesn’t cover the full amount of the loss, you may write off the portion of the loss that you did not get reimbursed by insurance.

In order to figure out what you can write off, you’ll need the total value of the damaged area of the home and then subtract the money you receive from insurance. Let’s say you had $20,000 in damages due to a storm, but the insurance only covered $10,000 of it. You could write off the remaining $10,000 on your taxes as a loss.

Write Off Premiums Paid for Rental Properties

One large exception to the rule of deducting homeowner’s insurance premiums is insurance on rental properties. Because investment real estate is a business, you may be able to write off the premiums you pay for those homes.

The amount you may write off depends on the circumstances. Do you rent out the entire unit or just a portion of it? If you live in part of the property and rent out a room or floor, you can only write off the portion of the homeowner’s insurance that covers the rented part of the unit.

In general, you can’t deduct homeowner’s insurance premiums on your tax returns. However, if your home is a business or you rent out homes as a business, you may be able to deduct a part or all of the premiums you pay. Check with your tax advisor to see if you meet any of the exceptions and are able to reduce your tax liability with these deductions.

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