Under most circumstances, you cannot deduct your homeowners insurance premiums from your taxes. However, if you work from home, rent out your home, or have a home insurance claim that wasn’t fully covered by insurance, you may be able to claim a standard or itemized deduction on your tax return.
Key takeaways
You generally can’t deduct homeowners insurance premiums from your taxes if the home is your primary residence.
If you use a room as a home office, you may be able to deduct a portion of your premiums.
If you rent out a home or condo, you may be able to claim a deduction on your insurance premiums as long as you don’t live in the residence.
If insurance denies a claim or only covers you for part of the loss, you may be able to claim a casualty-loss deduction.
What is a tax deduction?
Every year, you pay taxes on your taxable income — your salary, wages, and tips. Your tax burden is a percentage of your taxable income within your tax bracket that you have to pay back to Uncle Sam each year.
When you claim tax deductions, you’re not subtracting the deducted amount from your taxes. Instead, you’re simply reporting less income than you were thought to earn.
Let’s take a look at an example.
Say you earn $60,000 a year and claim $3,000 in tax deductions. That doesn’t mean you get to pay $3,000 less in taxes. Instead, you only pay taxes on $57,000 of income.
What types of insurance are tax deductible?
For some types of insurance — namely 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 and renters insurance if it qualifies as a business expense.
With homeowners insurance, the amount you pay in premiums and deductibles can be deducted from your taxes if you rent out your home or work from home. There are also rare cases when you can claim home and personal property casualty and theft losses as an itemized deduction on your tax return if your insurer denies you coverage or if you’re not fully reimbursed for a loss.
Tax deductions for renting out your home
If you invest in real estate and rent out your home, you can deduct the rental property’s homeowners or condo insurance from your taxes. That’s because renting out a home is considered work and the income you generate is taxable. That means spending money on a rental property would count as a business expense, even if that expense is homeowners or condo insurance.
At tax time, you file a Schedule E — Supplemental Income and Loss Form — where you provide how much rent you collected that year and whether the home is your primary residence. And if so, for how long. Keep in mind that for tax purposes, it’s best if your rental property isn’t also your permanent residence.
Tax deductions if you work from home
If you work from home, the portion of your homeowners insurance premiums you can deduct from your taxes is calculated by determining what percentage of your home in square footage is used for business purposes. Keep in mind your workstation needs to have a condensed, specified area of your home in order to qualify as a business insurance expense.
Let’s take a look at an example.
Say you have a home office where you do the majority of your work. If 15% of your house’s square footage is used for your home office, then 15% of the amount you paid in premiums for the year would be deducted from your taxable income as a business insurance expense.
Tax deductions for denied home insurance claims
If your home or property is damaged and your homeowners insurance claim is denied, you may be able to deduct the loss from your taxes if it occurred during a federally declared disaster.
Known as a casualty and theft loss deduction, you can deduct a portion of the value of the property or home that was damaged or lost during a declared disaster on your taxes.
However, the damage or theft needs to have occurred during a sudden or unexpected event — meaning the loss was swift, unanticipated, and unintended, rather than gradual or progressive.
Deductible casualty losses | Non-deductible casualty losses |
|---|
Earthquakes | Accidentally breaking items under normal circumstances |
Floods | Arson |
Fire — not arson | Damage a pet does to your home |
Government-ordered demolition or relocation of home deemed unsafe to inhabit | Damage of trees, shrubs, and other plants because of fungus, disease, or insect infestation |
Mine cave-ins | Losses of property because of a drought |
Sonic booms | Termite or moth damage |
Storms like hurricane and tornadoes | Wear and tear |
Terrorism | |
Vandalism | |
Volcanic eruptions | |
What if my home insurance company only partially covered my claim?
If your home insurance company only partially covered the damage or theft, you might still be able to deduct the difference on your taxes if it meets the above criteria.
For example, if that antique urn that was stolen from your mantelpiece was worth $6,000 and the insurer only paid out $5,000 to cover your losses, you can claim a $1,000 loss on your taxes.
How to calculate casualty and theft loss deductions
There’s quite a bit of subtraction to do when you file losses on your taxes. Here are two rules to remember:
Rule #1: Each individual loss immediately has $100 taken off the top.
Rule #2: From there, 10% of your adjusted gross income (AGI) is subtracted from the combined loss amount.
Let’s take a look at an example.
Say you file itemized losses of $1,000 and $3,000.
Based on Rule #1: Your loss amounts are actually $900 and $2,900 — or $3,800 in total.
Based on Rule #2: If your AGI is $35,000, the 10% threshold would be $3,500. This means after you subtract $3,500 from $3,800 — it only reduces your taxable income by $300.
The exception to this is when you suffer a loss to property used for business, like a rental property. In this case, you’re not required by the IRS to reduce the loss amount by $100 or the total loss amount by 10% of your AGI.
6 common home tax deductions
Even though home insurance isn’t usually tax deductible, these home expenses are:
Property taxes: You can usually deduct your state and local real estate property taxes on your primary and secondary residences if you itemize your tax return.
Capital gains: If you sell your home and make a profit, you might be able to avoid paying taxes on the amount you made through the capital gains tax deduction.
Mortgage insurance premiums: Not to be confused with home insurance, mortgage insurance protects you in case you lose your job and are unable to make your monthly payments. You can typically deduct these premiums from your taxes each year.
Mortgage interest: You can usually deduct all of the interest you pay on your mortgage from your taxes, but only if you file an itemized tax return.
Accessibility home improvements: If you renovated your home to make living with a disability easier — like adding a stair lift or wheelchair ramp — you can deduct those expenses from your taxes.
Energy-efficient features: Adding energy-efficient systems to your home, like new green appliances or solar panels for heat, can often be deducted from your taxes if you file an itemized return.
New green tax incentives can help homeowners save thousands
With the signing of the historic Inflation Reduction Act, homeowners will receive thousands of dollars in tax incentives to improve their home’s energy efficiency in 2022 and beyond — as well as other benefits like electric vehicle tax credits. Even if you don’t take advantage of these tax credits yourself, it’s predicted that the average American household will save $170 to $220 per year on electric costs due to this new mix of energy.
Read more about the Inflation Reduction Act
Have questions about what qualifies and what doesn’t? Speak to a licensed tax professional who can walk you through all of the tax deductions you might qualify for.
Frequently asked questions
Can I deduct my homeowners insurance deductibles from my taxes?
Yes, it’s possible to qualify for tax deductions on your homeowners insurance deductibles — the amount you pay to an insurer before they pay out a claim. However, the $100/10% rule must be met in order to qualify. There also may be extenuating circumstances where you can add the paid insurance deductible to the amount the insurer didn’t cover on the loss or losses, and deduct that from your taxes.
What if my claim settlement payment on a loss exceeded the property ’s current value?
If the insurance payment for a loss exceeds the property’s current value, you may have to report that amount as a taxable gain — the amount you make on an asset — on your income taxes.
