Is Homeowner's Insurance Deductible?

Not many expenses from your primary residence are tax-deductible.

Owning a home can be very expensive, so you want to minimize your costs wherever you can. When tax time comes, you want to find every available tax deduction that the law permits, and you might wonder if you get to deduct your homeowner's insurance premium. While that would likely be a sizable deduction, chances are you're not allowed to take it.

Primary Residence

Generally, the premiums you pay for the insurance on your primary residence are not tax-deductible. The IRS specifically forbids you from deducting this insurance expense from your taxable income. The same rule applies to other forms of personal insurance as well, such as auto or umbrella policy premiums. Despite this, there are some circumstances under which part or all of your premiums might be tax-exempt.

Business Use of Your Home

You may operate a small business out of your home, or you may have a business office there. In these cases, some of your homeowner's insurance premiums may be tax-deductible. Consult your tax professional to determine what percentage of your premiums you can deduct. Business use of your home may create a slight tax advantage, but it comes with insurance risks as well. Standard homeowner's insurance excludes all business activity in your home, so you'll need to endorse your policy to cover these potential losses. This endorsement will raise the premium.

Rental Properties

If you own a second or third home and rent it out to another family for income, you may have a tax advantage. You should insure these homes against damage just as you would your primary residence, but you also need a special homeowner's insurance policy for landlords. Landlord insurance pays for legal issues arising out of the landlord/tenant relationship and does not typically protect the tenants' belongings. This insurance can be considered a business expense and, as such, may be tax-deductible.

Reasoning

The IRS generally treats business ventures favorably. The general rationale is that if a business has a light tax burden, it will have more money to invest in its operations and therefore be able to operate more efficiently and generate more revenue. Most standard personal insurance is not used for business purposes and therefore is not tax-deductible. However, when you insure something for business use, whether it is an additional property, commercial space or fleet vehicle, you may be able to deduct the premiums. Consult your tax adviser regarding how to maximize your deductions.

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