Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 28, 2021

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Insurance Q&A: “Is homeowner’s insurance tax deductible?”

The true cost of owning a piece of property is often substantially higher than just your monthly mortgage payment. The two biggest additional costs come in the form of property taxes and insurance. Unfortunately, only one of these is under your control. It can fluctuate with claims history and other factors. But you can adjust your coverage and compare different companies. Property taxes are set by the government, and you cannot bargain them down.

While the continuation of the mortgage interest tax deduction is currently up in the air, for the time being, it can still be deducted from your taxable income. Keep your fingers crossed on that one if you’re a homeowner. Even if it’s kept intact, it may be reduced.

But what about a deduction for those costly homeowners insurance premiums? Not so fast. There is currently no tax deduction available for this common expense. You are simply “out” the money for personal homeowner’s insurance costs as far as good old Uncle Sam is concerned. If you have a claim, though, the right policy can mitigate your losses and restore your interests.

What property insurance is tax deductible?

However, property and homeowners insurance may be tax-deductible in certain instances. Namely, when the insurance premiums are being incurred for business purposes. This works on both your state and federal taxes. If you’re using itemized deductions, you can write off a certain amount if you use a part of your home as an office. Property owners with a rental property can also write off landlord insurance.

Landlord/Rental Properties – Being a landlord is a business venture. As a result, almost all of the expenses associated with operating your “business” qualify as tax deductions…landlord’s insurance policy premiums included. You generally have to pay different taxes, but you have more opportunities for deductions with a savvy tax preparer.

Home Businesses – There are some instances in which you can deduct part of your personal homeowner’s insurance premiums for a home-based business. We’re not talking about your “computer room” here. You must have a legitimate home office and be self-employed. You may also write off a certain amount if you’re a contractor (like a realtor) or if you work from home on a regular basis. Your tax preparer would have to run the exact calculations and see how much of your homeowners insurance policy would qualify as a deduction.

You may lease a certain portion of your personal home to your business to help qualify for this deduction. Ultimately, your business may write a monthly check to you in order to occupy the space in your home. But be careful with this one. Consult a tax advisor before you file to ensure you are not red-flagging yourself for an audit by trying to cheat the IRS! Generally, deductions are based on things like hours you spend in your home office and the square footage of your office space compared to your home as a whole.

Private Mortgage Insurance (PMI) – You may also qualify for a tax deduction on PMI, which is necessary if your mortgage loan was more than 80% of the value of your home when it was purchased. Again, consult your tax advisor before attempting any such deduction.

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What if you can’t deduct your homeowners insurance?

Okay, so we know you’re probably bummed that homeowners insurance premiums generally can’t be deducted from your income taxes.

But it’s not all bad news. If you happen to file an insurance claim, which likely isn’t good news, for what it’s worth, insurance payments you receive from your insurer are generally not taxable. They’re meant to make you whole again, not to act as income. If you do the paperwork the right way, the IRS does recognize that factor. You’ll see a significant difference on your tax return depending on the amount of the payout.

It probably wouldn’t be worth getting the small tax deduction on your homeowner’s insurance premium if you had to trade that for a tax on a property claim settlement, which could end up costing you thousands of dollars on a large enough claim.

Depending on the amounts you’re looking at, the standard deduction might still be the best way to go. In this case, it wouldn’t really make a difference either way. If that small amount of taxable income pushes you over the line into the next tax bracket on your tax return, make sure you consult with professionals to review all your options.

Read more: Is car insurance tax deductible?