Home insurance is a personal insurance line where you pay a premium to have your home protected against financial losses due to perils such as fire, theft, and certain water damage. Trying to maximize deductions, you may wonder: is your home insurance tax deductible? In most cases, you can not deduct the cost of homeowners insurance on your personal tax return.
When Home Insurance Is Tax Deductible
There are some circumstances where you can deduct part or all of your premiums on your tax return.
When is home insurance tax deductible?
- Working from home and claiming a home office credit may allow for a partial deduction
- Being a landlord with the property being a revenue source and expenses including home insurance deductible
Deducting a Loss on the House
When you have a claim, you generally are made whole on the value of what you lost. This means that damage to the home is repaired to its state prior to damage or property is replaced. But there are times when you might not get a check for the whole loss such as when a home insurance policy covers you for the property’s actual cash value rather than its replacement cost.
The actual cash value is a depreciated amount. Assume you had personal belongings insured for the actual cash value and you were burglarized. If the depreciated value of what was stolen was $50,000 but it would cost $75,000 to replace everything, you can deduct the difference of $25,000. This is common with flood and earthquake insurance as well.
Home Expenses You Can Deduct
The IRS allows you to deduct certain home expenses on an itemized basis on your taxes (Form 1040). These expenses include:
- Mortgage interest
- Property taxes
- Home office deductions
Mortgage interest is the amount you paid during the year to have your mortgage. This is only the interest that you can deduct, not the principal payments. You should receive a Form 1098- Mortgage Interest Statement from your lender that tells you how much you paid in interest.
Property taxes are the amount paid to the city and state to reside on the parcel. These may fluctuate yearly and often the Form 1098 will list this as well, though you can confirm the amount with the local assessor’s office.
A home office deduction allows you to deduct a certain amount of expenses based on how much of your home is dedicated to office work. Things that count toward the home office deduction include insurance, utilities, general repairs, security systems, and telephone.
While home insurance is generally not tax deductible, there are times when homeowners can add this as part of their other home deductions on their taxes. The times include when the home is a rental or when the home is used for business purposes. When used for business purposes, only part of the insurance may be deductible. It’s always best to review deductions with your tax advisor to make sure you are eligible to take them.