Homeowners

Is Home Insurance Tax Deductible?

May 29, 2024

Also known as homeowner's insurance, home insurance is one of the most common costs for homeowners. Like other forms of insurance, home insurance provides coverage in exchange for costs called premiums. Home insurance is important for covering replacement or repair costs if a home is damaged by fire or storm. Coverage for most policies is broken down between dwelling coverage, liability coverage, and personal property coverage.

If you're like most soon-to-be-buyers or first-time homeowners, you're eager to find out about deductible expenses you can take advantage of to bring down the cost of homeownership. Is home insurance tax deductible? Take a look at what you need to know.

Understanding Tax Deductions

A deduction is an amount you are legally able to subtract from your income when you file taxes. The government provides deductions as benefits to reduce taxable income for certain individuals. Homeowners have a variety of tax deductions available to them based on specific criteria.

Is Homeowners Insurance Tax Deductible?

In general, home insurance is not considered a tax-deductible expense. The only exception would be if you derive income from your property. In this case, your home insurance could be considered a business expense that is eligible for deduction.

Is homeowners insurance tax deductible for a rental property? If you rent out part of your home through Airbnb or another home-sharing app, a portion of your home insurance premiums could qualify to be tax deductible. Another situation where a portion of your home insurance could be deductible is if you run a business from your home. Finally, homeowners who use a home strictly for an investment purpose can deduct the entire amount of their premiums as a business expense. If you use any part of your home for income-driving purposes, it's important to work with a tax expert to make sure you're taking advantage of deductions according to IRS code.

Eligible Tax Deductions For Homeowners

While home insurance premiums generally can't be deducted for the average homeowner, the good news is that there are plenty of tax deductions that homeowners can take advantage of to reduce their tax burdens. Take a look at the most common tax deductions for homeowners.

Mortgage Points Deduction

This is one of the most common tax breaks for homeowners in the first year of homeownership. Mortgage points are optional fees that pay your lender when you buy a home to lower your interest rate. Think of them as "prepaid interest." By bringing down your interest rate using mortgage points, you can typically lower both your monthly payments and the total interest you'll pay over the life of the loan. Many homeowners choose this option because it may help them to enjoy cost savings for the life of the mortgage.

How Do Tax Deductions Work For Mortgage Points?

At tax time, mortgage interest deductions can be used as itemized deductions. While you always want to speak with a tax professional when weighing the tax implications of purchasing mortgage points, the basic idea is that the IRS allows you to deduct the full amount of your mortgage points in the year they are paid. The IRS also requires the following:

The mortgage is being used to build or purchase a primary residence.
The points represent a percentage of the mortgage total.
The amount of points paid isn't considered excessive for your area.
The points cannot be used to pay for property taxes or other stand-alone fees.
The funds for the points were not borrowed from the lender.
The amount paid for mortgage points must be itemized on your loan documents.

Mortgage Interest Deduction

If you use a standard itemized deduction when filing taxes, the mortgage interest deduction allows you to subtract your mortgage interest from your taxable income. This tax break is available for both primary residences and second homes. The deduction amount is either $750,000 for married couples filing jointly, single filers, and heads of households or $375,000 each for married filing separately.

Apply Now

Property Tax Deduction

Can you write off property taxes? The property tax deduction allows homeowners to write off state and local taxes paid on their properties when filing their federal income taxes. This tax perk for homeowners covers two fronts because it includes both the annual property tax on your home's assessed value and any tax you paid at closing.

Rental Deductions

If you use a home as a rental property, potential deductions include:

Mortgage interest
Insurance premiums
Property taxes
Maintenance costs
Management costs
Depreciation
Legal costs
Transportation costs tied to managing the property

Home Office Deductions

If you run a business from your home, you may be able to claim the IRS's home office deduction. Keep in mind that this tax break is not open to employees who work from home. For qualifying filers, deductions can include:

Mortgage interest
Insurance
Utilities
Repairs
Maintenance
Depreciation

Photo of a well organized home office

Home Improvement Deductions

Did you know that some home updates can result in a tax break? Updates that qualify as "capital improvements" can sometimes be tax deductible. A capital improvement is something that adds value to a home, prolongs its life, or adapts it for updated uses. While painting a room might not qualify as a capital improvement, adding an addition, swimming pool, storm windows, security system, or new roof might.

Energy-Efficiency Deductions

The federal government offers a variety of annual tax credits for qualified energy-efficiency improvements. Credits are available for everything from upgrading to ENERGY STAR® systems to installing solar panels. With these credits shifting and expiring pretty regularly, it's important to research exactly what's available the year you purchase your home.

Deductions For Accessibility Improvements

Some ADA-compliant home modifications may be tax deductible if you need to update a property to make living at home more accessible due to age or disability. These costs are generally considered medical expenses by the IRS.

Get Started

FAQs

Why is homeowner’s insurance not tax deductible?

The IRS considers home insurance a non-deductible personal expense. This is why it can only be deductible if part of your home is used as a business.

Are property insurance claims tax deductible?

Yes, there are some cases where a claim may be tax deductible. If your denied or partially covered claim took place during a federally declared disaster, you may be able to deduct it from your taxes. Damages from disasters are deducted from IRS Schedule A (Form 1040).

What is the difference between homeowners insurance and mortgage insurance?

Mortgage insurance offers coverage against structural damage, liability, and more. While it is required by most lenders when taking out a mortgage, it is not tied to a mortgage. Also known as private mortgage insurance (PMI), mortgage insurance is a type of insurance that protects the lender against default. It is generally required when putting down less than 20% on a Conventional mortgage. Mortgage insurance (PMI) is required when you obtain an FHA loan with a down payment of 10% or less.

Happy family playing outside of their new home