Anyone who owns property must consider the chances of damage or destruction by natural causes, and the peace of mind provided by hazard insurance. You can protect assets with insurance against fire, flood, storms, and earthquakes, but the Internal Revenue Service does not always allow you to deduct the expense of this coverage.
The IRS does not allow a homeowner to deduct the cost of insurance on his house or other property. The only deductible insurance premium is mortgage insurance. However, the IRS does allow the deduction of casualty and theft losses, less any reimbursement from the insurance carrier. A casualty loss can include destruction from a flood, fire, hurricane, volcano or earthquake.
As a general rule, the IRS allows deductions for expenses related to income-producing property. If you own a rental home or vacation property, for example, hazard insurance on that property is deductible, along with certain other expenses of buying, maintaining, repairing and advertising. Insurance deductions are taken on Line 9 of Part I on Schedule E, Supplemental Income and Loss.
If you use part of your home for business purposes, you may be able to take a deduction for a home office. The amount would represent the percentage of floor space taken up by the office, multiplied by the overall costs of the property, including rent, utilities, and insurance. If the office occupies 10 percent of the floor space, for example, 10 percent of hazard insurance costs would be deductible. Calculate the home office deduction using Form 8829.
When hazard insurance is purchased specifically and exclusively for a business purpose, the entire amount of the premium is deductible. If you're running a boat repair shop on the property, for example, and have fire coverage exclusively for a detached shop used only for that business, the hazard insurance comes off your business income on Schedule C. In theory, hazard insurance for the house you're living in would also be partially deductible if you use part of that living space for an office.