How To Determine if Your Home Insurance Is Tax Deductible
In preparation for tax season, many homeowners search for every possible tax deduction to lower their taxable income. A big question people ask before they file is: Can you write off your home insurance on your taxes?
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Understanding the rules around home insurance tax deductions can help you avoid missed opportunities and make smarter financial decisions. To help you learn more, we'll break down when home insurance is tax-deductible, when it's not and why it may not always be worth the effort.
Personal Residence Insurance Is Not Deductible
For most homeowners who use their property solely as a personal residence, "homeowner's insurance is not a deductible expense when filing your personal taxes," said Noel Lorenzana, a certified public accountant (CPA).
The Internal Revenue Service (IRS) does not allow deductions for personal expenses, including home insurance. Previously, you could deduct mortgage insurance premiums, including private mortgage insurance (PMI), but that deduction expired in 2021.
Currently, if you live in your home and do not use it for business purposes, you cannot write off any kind of home insurance premiums.
Using Your Home for Business May Allow Some Deduction
However, there are exceptions to this rule, particularly for those who use part of their home for business purposes.
"If you maintain a qualified home office, you may be able to deduct a portion of your homeowner's insurance as a business expense, based on the percentage of your home used for business purposes," said Lorenzana.
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The IRS allows self-employed individuals and small business owners to claim a home office deduction if they use a portion of their home exclusively and regularly for business activities. This deduction can include a percentage of various home-related expenses, including home insurance.
To qualify for the home office deduction, you must meet certain criteria:
Exclusive use: The area of your home used for business must be used exclusively for business purposes. This means that you cannot use the space for personal activities.
Regular use: The area must be used regularly for business purposes. Occasional or incidental use does not qualify.
Principal place of business: Your home office must be your principal place of business, or it must be used to meet clients, customers or patients in the normal course of your business.
If you meet these criteria, you can calculate the deductible portion of your home insurance premiums based on the percentage of your home used for business. For example, if your home office occupies 10% of your home's total square footage, you can deduct 10% of your home insurance premiums as a business expense.
Rental Property Insurance Can Be Deductible
Good news for real estate investors: You can deduct 100% of your home insurance costs on a rental property. Lorenzana noted that "for rental properties, homeowner's insurance qualifies as a deductible business expense. This reflects the cost of maintaining and managing a property that generates rental income."
If you are a landlord, you can deduct the cost of insuring your rental property just like you can deduct expenses such as repairs, maintenance and property management fees. Therefore, homeowners and private mortgage insurance can be claimed as business expenses and written off on your taxes.
Non-Business Owners Still May Not Want To Itemize
Since the Tax Cuts and Jobs Act (TCJA) has nearly doubled the standard deduction and reduced itemized deductions available to homeowners, fewer homeowners may choose to itemize deductions.
"Notably, the deduction for PMI expired and is no longer available, further diminishing the tax advantages of owning a home," Lorenzana said.
With fewer deductions available to homeowners, you may find taking the standard deduction will save you time and money compared to itemizing your expenses. Remember that it's always advisable to consult with a tax professional or accountant to ensure you maximize your deductions and comply with all current tax laws.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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