Is homeowners insurance tax-deductible?

As we move into tax season many of us are looking for tax deductions to lower our tax burden. While your home can lead to some major deductions, you may be wondering if it is possible to deduct your homeowners insurance premium.

In most cases, the answer to this question is no but there can be exceptions that lead to a deduction. Here is a quick overview of homeowners insurance and tax deductions:

Is homeowners insurance tax-deductible?

In almost all cases, the answer is no. Your homeowners insurance premium is not tax deductible on either your state or federal taxes. This not only includes the premium but your deductible as well and any property losses. 

There can be a few circumstances that allow you to deduct a portion of your homeowners insurance premium. If you work from home, have a home-based business or rent out part of your home you may be able to take a few deductions. 

In addition, you can often take a deduction for any losses your home suffered or damage to your home that your insurance company did not fully cover. This can be common with flood and earthquake claims if you are not carrying flood or earthquake insurance. Unfortunately, you have to meet very specific criteria to be able to deduct your losses.  

Let’s have a quick look at possible tax deductions when it comes to homeowners insurance:

Home Office: If you work from home regularly or run a small business out of your home, you should be able to take a tax deduction for the home office. However, the amount you are allowed to deduct is based on the square footage of your office. 

According to the IRS, you can deduct the square footage of your office as it relates to the total square footage of your home. As an example, if your office takes up 8 percent of your home’s total square footage, you should be able to deduct 8 percent of your homeowners insurance premium. 

Energy efficient improvements: Energy efficient improvements can be deducted in many cases. If you install solar panels, geothermal heat pumps, solar water heaters, wind turbines or a fuel cell you may be eligible for a tax credit. 

In the Renewable Energy Tax Credit, the IRS says “energy saving improvements” made to a personal residence before January 1, 2021 can qualify for a tax credit. Currently, the tax credit is 26 percent of the cost of the energy efficient equipment you installed. 

This tax credit can be applied to a primary home or even a vacation home. A tax credit can be applied to your taxes to lower your tax bill. As an example, if you installed a $35,000 solar system you would receive a tax credit of $9,100. 

Medical renovations: It is also possible to take a tax deduction for home improvements that are related to medical issues. However, you have to meet a specific threshold to take the deduction. The IRS allows you to take a deduction for medical expenses related to “the diagnosis, cure, mitigation, treatment, or prevention of disease.”

The big caveat here is that you can only take the deduction if your costs have exceeded 7.5% of your adjusted gross income. This deduction will probably not be a huge help unless you have to make major changes to your home such as adding ramps, widening hallways, or putting in a stair lift.

Uncovered losses: If you experienced property damage or a loss that was not fully covered by your insurer, you may be able to deduct that loss but there are major thresholds that have to be met.

In 2017, the Tax Cuts and Jobs Act of 2017 was passed which says that you can only deduct a casualty loss if the property loss occurred in a federally declared disaster area. This means that the president must have declared your area a federal disaster area before you could deduct any uncovered losses. In addition to this requirement, you must also subtract $100 per incident as well as 10% of your adjusted gross income (AGI) from the loss amount. Whatever is left over can be deducted from your taxes. 

Rental property: If you rent your primary home from time to time or have a rental property, you should be able to deduct some of your homeowners insurance costs. Renting a home out is considered work so the IRS allows you to deduct expenses related to the rented property as business expenses which can be deducted. 

According to the IRS webite, “You can deduct the ordinary and necessary expenses for managing, conserving and maintaining your rental property. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities and insurance.”

You will need to file a Schedule E form (Supplemental Income and Loss) if you are taking a deduction for a rental property.