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Is Homeowners Insurance Tax Deductible?

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There is no denying that homeowners insurance is a necessity. After all, when a catastrophe hits, it's insurance that makes things right. But is homeowners insurance tax deductible? Could you save more by deducting the premium even after any savings and discounts on home insurance you score? Here, we'll find out if house insurance is tax deductible and look at other tax deductions for homeowners.

When can you deduct home insurance premiums?

Can you deduct homeowners insurance? It depends. While the average homeowner cannot write these premiums off, it is permissible under the following conditions:

  • You run a business out of your home. According to the IRS publication Business Use of Home, your home insurance premium is deductible. That said, you'll only be able to deduct a fraction of what you pay. Let's say you have a 2,000 square-foot home and use 300 square-feet of space to run your business (300 square feet is 15% of 2,000 square- feet). That means you can deduct 15% of your annual homeowners insurance premium. If, for example, you pay $1,200 a year in homeowners premiums, you'll be able to deduct $180 ($1,200 x 0.15 = $180).
  • You own rental property. Property insurance is a deductible business expense if you own rental property and receive rental income.

Other tax deductions for homeowners

The good news for homeowners is that there are other homeowner tax deductions, even if a homeowners insurance premium is not one of them. Simply put, tax deductions are the best way to reduce taxable income and save money.

When a taxpayer files their annual tax return, they have two choices. They can take the standard deduction or an itemized deduction -- whichever deduction offers a more significant tax benefit. Because they have so many potential deductions associated with homeownership, many homeowners opt to itemize their deductions. Here are some of home tax deductions:

Mortgage interest

When a homeowner borrows money from a mortgage lender, they repay the loan with interest. Each tax year, homeowners can deduct a portion of the interest they pay for a tax break.

Own a home? Then you should check out The Ascent's guide to the mortgage interest deduction.

Mortgage insurance

Homeowners who took out their mortgages after 2006 can deduct part or all (depending on their income) of the cost of insuring their mortgages. This includes:

Mortgage points

Mortgage points (sometimes referred to as "discount points'') are fees paid to lower the interest rate on a mortgage. They are treated the same way other mortgage expenses are treated for tax purposes and can be deducted.

Property taxes

All or part of the property taxes paid by a homeowner can be deducted from their annual tax return. For example, for the 2020 tax year, married couples filing jointly could deduct up to $10,000, while anyone married and filing separately or single could claim a $5,000 deduction.

Interest on home equity loan

Homeowners who use a home equity loan or home equity line of credit (HELOC) to make substantial home improvements can deduct the interest paid on the loan. The only caveat is that the total deduction cannot exceed the mortgage interest deduction limit imposed by the IRS

Expenses for home office

As mentioned, if you work from home or are self-employed, you may be able to deduct the cost of running your business. If you are at all intimidated by the rules surrounding home office deductions, a tax professional may be your best bet. The taxes you save will likely cover the fee paid for professional advice. At the very least, you'll have peace of mind, knowing you took every possible deduction.

While the answer to, "Is home insurance tax deductible?" is generally no, there are plenty of other tax breaks for homeowners. For more insight into homeowners insurance, visit this guide to homeowners insurance page.

FAQs

  • Homeowners insurance may be partially tax deductible for those running a business from their home. Other deductible expenses include:

    • Mortgage interest
    • Mortgage insurance
    • Property taxes
    • Interest on a home equity loan or HELOC
    • Costs related to working from a home office
  • Yes, but only in three situations:

    • When damage is related to a federally recognized disaster
    • When part of your home is used for business
    • When damage is to a rental property owned by you
  • Yes, but only on rental property you own. You cannot write off flood insurance on your primary residence.

  • No. Installing a new roof on your main home is considered a home improvement and is not tax deductible. You can deduct the cost of installing a new roof on a rental home you own -- although it will have to be deducted over time.

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