You probably can't think of many people that get super excited about doing taxes. And figuring out if homeowners insurance is tax deductible can be a nightmare.
But, it doesn't have to be:
There are set guidelines that almost never change; that if you meet, you can deduct some of your home insurance coverage from your taxes.
In this post today, I will go over the different situations in which homeowners insurance can be deducted from your taxes and what steps you have to take to qualify for the deduction.
What Exactly Is A Tax Deduction?
A tax deduction is when you deduct an expense from your taxable income. For example, if you made $75,000 in taxable income this year and had $15,000 in tax deductions. That would bring your taxable income down to $60,000 and you would only pay taxes on that amount.
For most types of insurance policies, like life insurance and disability insurance, you can’t deduct insurance premiums from your taxes. You can claim deductions for health insurance (if it’s paid for with after-tax dollars) as well as renters insurance but only if it qualifies as a business expense.
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When Can You Deduct Homeowners Insurance?
There are two different situations where you can deduct your insurance payments from your house.
- When you are using your home for your business - Let's say you have a home office and you only work out of that office for business. Your house is 1,500 square feet and your room is 450 square feet, this means you are using about 30% of your home for business purposes. You can actually take off that 30% from your homeowners insurance expense.
- If you're a landlord and claim rental income on your home, your homeowners insurance on the portion of the property used as a rental becomes tax-deductible. When you own several properties and those properties are used only for rental income, then all of the homeowners insurance is tax-deductible.
Be sure to consult a tax preparer for more details on how to deduct homeowners insurance.
Tax Deductions For Real Estate Investing
If you are a real estate investor and have a home that you rent out, you can deduct the homeowners insurance for that house as an expense on your taxes. This is because it is the equivalent of running a business when you start making rental income and homeowners insurance is an expense for that business. You would need to file a Schedule E form and provide how much rent you collected that year and whether or not you lived at the property yourself during the year.
Tax Deductions If You Work From Home
Working from home has a ton of benefits, you get to avoid traffic, you can't be late, and you get to set your own schedule, but did you know: That you can deduct expenses from your home office?
The amount you deduct is calculated by figuring out what percentage of your home (in square footage) is used for business. If 25% of your house’s square footage is used for work, then 25% of the amount you paid in premiums for the year would be deducted from your taxable income.
However, keep in mind that your home office needs to actually be designated for that and only work happens in there.
Examples of deductible casualty losses are:
- Floods
- Earthquakes
- Mine cave-ins
- Fire (non-malicious/unintentional)
- Government-ordered demolition or relocation
- Terrorism
- Vandalism
- Sonic booms
- Volcanic eruptions
- Storms like hurricane and tornadoes
Examples of deductible casualty losses are:
- Wear and tear
- Termite or moth damage
- Damage a pet does to your home
- Losses of property because of a drought
- Fire you willfully set or you paid someone to set
- Accidentally breaking items under normal circumstances
- Damage or destruction of trees, shrubs, and other plants because of fungus, or disease.
Homeowners Insurance Vs Mortgage Insurance
Although you might pay them both, keep in mind that mortgage insurance and homeowner’s insurance aren’t the same thing:
- Homeowner’s Insurance protects you against a loss from damage to your home.
- Mortgage insurance protects you in case you can’t make your mortgage payments.
- earthquake
- natural disaster
- irresponsible tenants
- electric / gas malfunction
However, you can deduct mortgage insurance premiums on both your personal home and rental properties. Income restrictions apply to mortgage insurance premiums on your home.
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