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Renters insurance is not tax-deductible unless a room in your insured property is used exclusively to conduct business.
Renters insurance protects you from the financial risk of losing your personal property, being liable for someone’s injury, or needing alternative housing accommodations when you live in a home you rent. Like other forms of insurance, you pay for renters insurance with premiums, monthly or annual payments that are calculated as a function of your coverage needs and location.
Most people don’t pay more than $10 to $20 per month for a basic renters insurance policy, but that can add up. You may wonder whether you can deduct that amount from your taxes the way you can sometimes deduct your health insurance premiums. Under most circumstances, renters insurance premiums can’t be deducted from your taxes.
The one exception under which you can deduct renters insurance is if you use a room in your rental property as your home office. But what constitutes a home office is strictly defined by the IRS, so even if you run your own business out of your home, you may not qualify for the deduction.
Read on to learn more about:
Every year, you pay taxes on your taxable income, an amount that comprises your wages, salary, and tips minus a nearly endless selection of potential credits and deductions. (Or just the standard deduction, whichever is greater.) Your tax liability is a percentage of your taxable income within each range of increasingly larger tax brackets.
Deductions have to be itemized on a separate form of your tax return, which breaks them up into categories related to each expense. When you claim a deduction, you’re not exactly subtracting the amount from your taxes; you simply report less income that you’re obligated to pay taxes on. If you earn $50,000, and you claim $1,000 in deductions, that doesn’t mean you pay $1,000 less in taxes, but that you only need to pay taxes on the $49,000 in remaining income.
For most types of insurance products, including life insurance and disability insurance, you can’t deduct your premiums from your taxes. You can claim a deduction for health insurance premiums if you paid for your coverage with after-tax dollars, but that’s one of the few exceptions.
Renters insurance is another exception. You can claim a tax deduction on renters insurance premiums, but only if you work from home and have a room in your house that you use only as an office. In that case, renters insurance counts as a business expense, and business expenses can be claimed as deductions.
To be clear, there’s no section on your tax return that says “renters insurance deduction.” But when claiming business expenses, if your business is principally run out of your home office, you’ll be able to deduct your renters insurance premiums.
But if the room has any other function, you can’t write off business expenses related to it. You can’t deduct any business expenses that arise out of the use of your living room, dining room, or bedroom.
Get a renters insurance quote without the confusion.
To calculate how much of your home office business expenses can be claimed as a deduction, you have two options: the regular method and the simplified method.
The simplified method involves measuring the area of your home office and multiplying by 5. The result is the total dollar amount you’re allowed to deduct.
If your home office is 100 square feet, you can write off up to $500 in business expenses, including your renters insurance premiums. (The maximum allowed is $1,500, or 300 square feet.) You report this information on Schedule C to your Form 1040.
The standard method uses the area of your home office in square feet divided by the total area of your home. Add your expenses together and multiply the result by the percentage your home office takes up of your home.
If you paid $100 in renters insurance premiums, and your home office takes up 20% of your entire house, you can claim $20 of those premiums as business expense deductions. You need to fill out the IRS Form 8829 if claiming a business expense using the standard computation.
For most people, renters insurance isn’t tax-deductible. Others won’t need to itemize their deductions at all, if the standard deduction exceeds the amount they’re eligible to deduct.
If you don’t have a home office, your renters insurance premiums aren’t tax-deductible.
Most people use their home office when they run their own business. But if you’re an employee of someone else’s company, you can only deduct business expenses related to your home office if:
The IRS instructions for deducting insurance premiums are contained in Chapter 6 of Publication 535. There you’ll find that, as long as the coverage is “related to your trade or business”, you can deduct premiums for insurance “that covers fire, storm, theft, accident, or similar losses.” That generally describes renters insurance (as well as homeowners and condo insurance).
But there’s another document you need to look at: your actual renters insurance policy. Most renters insurance policies actually exclude coverage for the part of your home used for business. Check the policy’s definition for “insured location” or “residence premises” and you’ll usually find the exclusion there. That means your renters insurance does not cover your business property, and, per the tax code, your premiums are not deductible.
To make sure your renters insurance is “related to your trade or business”, you may need to add a rider to your policy. Riders enhance the terms of the policy by scheduling coverage for additional property. Ask your insurer for a “business property endorsement” or “home business endorsement” to extend coverage to business property. Not only will you be reimbursed for a loss to your business property; you’ll also be able to write off some of your premiums.
Additionally, some renters insurance policies that otherwise exclude coverage for business may include some coverage for business property under their section for special limits of liability. This usually means a few thousand dollars in coverage for property used for business expenses both located in your home and away from it.
A tax expert can tell you whether this small amount of business property coverage is enough to deduct your renters insurance premiums on your tax return, and a licensed representative at Policygenius can make sure you’re getting the right renters insurance policy for your needs, including any riders you want to add.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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