Homeowners insurance is usually not tax-deductible for personal residences, but you may be able to deduct part of the cost if you use your home for business or rent out a portion. Most personal expenses related to homeownership don’t qualify, so it’s important to understand the exceptions. A financial advisor can help you understand IRS rules and identify any deductions that may reduce your tax burden.
Is Your Homeowners Insurance Tax-Deductible?
For the majority of homeowners, homeowners insurance premiums are not tax-deductible if you use the property solely as a primary residence. The IRS considers these insurance payments personal expenses, much like groceries or utility bills. Therefore, it does not allow you to deduct them under standard tax rules.
However, certain exceptions can make a part, or even all, of your homeowners insurance deductible.
- Home office use: If you operate a legitimate business from home and meet the IRS’s qualifications for a home office deduction, you may be able to deduct a portion of your homeowners insurance. This portion is typically based on the percentage of your home used exclusively and regularly for business. For example, if you use 10% of your home as an office, you may be able to deduct 10% of your insurance premium as a business expense.
Rental properties: If you rent out part or all of your property, the portion you use for rental purposes is considered income-generating. That means the associated expenses, including homeowners insurance, are typically deductible. This applies whether you rent the property long-term or as a short-term vacation rental, as long as you report the rental income on your tax return.
Mixed-use homes: If your home serves both as a personal residence and a rental property (e.g., a duplex where you live in one unit and rent the other), you can generally deduct the insurance costs attributed to the rental portion of the home. This requires allocating expenses appropriately based on use.
In all of these cases, proper documentation and adherence to IRS rules are essential. Be sure to calculate deductions accurately and report them on the correct tax forms. This is usually Schedule C for self-employed individuals and Schedule E for rental property owners.
Considerations When Deducting Homeowners Insurance
Unless your total itemized deductions exceed these thresholds, you are likely better off taking the standard deduction. In that case, many home-related expenses, including insurance, will not be individually deductible.
For those who do itemize, deductions, such as mortgage interest, property taxes and, in some cases, qualified medical expenses and charitable contributions, can add up quickly. Adding a legitimate deduction for homeowners insurance due to business or rental use could be a benefit.
Other Deductions for Homeowners
Owning a home may offer tax benefits that can reduce your taxable income if you itemize deductions. Common deductions include mortgage interest, property taxes and mortgage points. Homeowners may also qualify for tax credits for energy-efficient upgrades or deductions if they use part of their home for business. Here’s a closer look at each.
Mortgage Interest Deduction
The mortgage interest deduction is one of the most valuable tax benefits for homeowners itemizing their deductions. This deduction reduces taxable income by the amount of interest paid on qualifying mortgage debt used to buy, build or significantly improve your primary residence or, in some cases, a second home.
The deduction limits depend on when the mortgage was originated:
- For mortgages taken out after December 15, 2017: You can deduct interest on up to $750,000 of mortgage debt if you’re single, married filing jointly or a head of household. For married couples filing separately, the limit is $375,000.
For mortgages originated on or before December 15, 2017: The previous limits still apply. This deducts interest on up to $1 million of mortgage debt for single filers and married couples filing jointly, or up to $500,000 for married individuals filing separately.
Grandfathered debt: This refers to mortgages taken out on or before October 13, 1987. It is not subject to either of these limits. Interest on this type of debt is generally fully deductible, regardless of the loan amount.
To claim the mortgage interest deduction, your lender will send you Form 1098 at the end of the year. This shows the total interest you paid. You should report this amount on Schedule A of your federal tax return. Remember, to benefit from this deduction, your total itemized deductions must exceed the standard deduction for your filing status.
Property Tax Deduction
State and local property taxes are also deductible. However, they fall under the SALT (State and Local Tax) cap of $10,000 per year. If you already pay a lot in state income or sales taxes, there may be limits on the amount of property tax you can deduct.
You must itemize your deductions on Schedule A to take advantage of this deduction. Property taxes must have been paid during the year and assessed uniformly based on the property’s value.
Points Paid on a Mortgage
Points, also known as mortgage origination fees, may be deductible if paid to obtain a mortgage for a primary residence. Generally, you can deduct the full amount in the year paid. However, in some cases, you must spread the deduction over the life of the loan.
Check your mortgage paperwork to determine if you paid points and consult IRS Publication 936 for more detailed eligibility requirements.
Home Office Deduction
If you are self-employed and work from home, you may be able to deduct expenses related to your home office. This can include a portion of your homeowners insurance, utilities, internet and repairs. You must use this space regularly and exclusively for business.
The IRS offers both a simplified method (based on square footage) and a regular method (based on actual expenses). Employees working remotely for an employer cannot claim this deduction unless they are self-employed.
Bottom Line
While homeowners insurance is not typically tax-deductible for personal use, exceptions exist for those who rent out their homes or use part of their homes for business. Beyond that, other valuable deductions, such as mortgage interest, property taxes and home office expenses, can significantly reduce your tax burden if you itemize. Determining your eligibility for these deductions can be complex and often depends on your broader financial and tax situation.
Tax Planning Tips
- If you are looking for ways to lower your tax liability, a financial advisor who specializes in tax planning can help optimize your finances. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your next tax refund or balance could be, SmartAsset’s tax return calculator can help you get an estimate.
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