As tax season in the United States approaches, homeowners may be wondering about potential deductions that can help ease the burden of their financial responsibilities.
One common question is whether Homeowners Insurance is — or is not — tax-deductible.
While the general answer is “No, Homeowners Insurance is not tax-deductible,” there are specific situations where you just may be able to claim deductions related to your home insurance.
When Homeowners Insurance may be tax-deductible
So, why doesn’t Homeowners Insurance get the tax-deductible VIP treatment? The deal is that regular Homeowners Insurance isn’t typically tax-deductible because it’s seen as a personal expense rather than a business-related one. Tax perks usually kick in for things like mortgage interest or property taxes, but sadly, insurance doesn’t regularly make the cut.
Still, there are scenarios when your home insurance might score you some tax advantages. Let’s check out two of the most common tax benefits homeowners can use.
Use Your Home As a Rental Property
You may be eligible for tax deductions related to Homeowners Insurance. In some states, expenses associated with the portion of your property used for rental purposes — including insurance premiums — may be able to be deducted from your taxable income.
When you use your property as a rental, the insurance you pay to protect that rental portion becomes a deductible expense. This includes coverage for any structures on the rental part of your property, as well as personal property within that space.
However, it’s important to differentiate between personal and rental use to accurately calculate the deductible portion. We advise keeping detailed records and consulting with your tax preparer to ensure compliance with the specific guidelines in the state where the property is located.
Maintaining a Home Office
In the age of remote work, many homeowners have dedicated spaces for home offices. If you use a portion of your home exclusively for business purposes, you might be eligible for a home office deduction. While Homeowners Insurance itself is not directly deductible, a portion of your insurance expenses related to the home office space may be eligible for a deduction.
The percentage allowed would be based on the square footage of your home office relative to the total square footage of your home. To qualify, the space must be used regularly and exclusively for business purposes, so maintaining clear records is essential. Speak with your tax preparer to understand if this is an option you can take advantage of in your state.
Are tax deductions for homeowners still available?
Beyond the above considerations specific to Homeowners Insurance, several tax deductions available to homeowners can contribute to significant savings, including a portion of utilities, property taxes, and mortgage interest and insurance. Let’s take a look.
1 – Home Office Utilities
When it comes to tax deductions for a home office, utilities can play a key role. If you use a specific area of your home regularly and exclusively for business purposes, you may be eligible for deductions on utilities like electricity, water, and heating. The IRS allows you to calculate the percentage of your home devoted to your home office and apply that percentage to your utility bills. However, it’s important to keep accurate records and ensure that the expenses you claim are directly related to your home office activities.
2 – Property Tax Deduction
Generally, homeowners are also eligible for a deduction on property taxes for the tax year the payments were made. The deduction cap is $10,000 (or $5,000 if married filing separately) for state and local taxes, which includes property taxes. Just keep track of your property tax payments and consult a tax advisor to ensure you maximize this deduction. Added bonus to the community: This tax deduction encourages homeownership by helping reduce the financial burden of property ownership.
3 – Mortgage Interest Deduction
One of the most well-known tax benefits for homeowners has been a mortgage interest deduction. Interest paid on your mortgage loan, up to a specific limit, was considered a deduction from your taxable income. This deduction — applied to interest paid on loans used to purchase, build, or improve a primary and/or secondary residence — often resulted in some savings, especially in the early years of your mortgage when interest payments are higher.
Just make sure you re-evaluate the benefit every tax year as things change. For example, in 2023, the IRS says a mortgage interest deduction applies only on the first $750,000 of a home loan. Married taxpayers who file separately are eligible to subtract $375,000 from their average mortgage balance.
4 – Mortgage Insurance Deduction
For homeowners with less than a 20% down payment on their property, private mortgage insurance (PMI) is often a requirement. In recent tax years — 2018, 2019, 2020 and 2021 — eligible homeowners who were paying mortgage insurance were able to write off the premiums if they itemized their tax deductions. Unfortunately, this deduction is no longer available for tax year 2023.
Get guidance for tax season and beyond
Whether you’re using your home as a rental property, maintaining a home office, or looking for mortgage-related deductions, it’s really important to stay informed and consult with a tax professional to ensure you’re making the most of the available tax benefits — and not basing a deduction on information that’s out of date or inaccurate.
Meanwhile, if you’re looking for insurance on your property — whether you are a homeowner, renter, or landlord — Guided Solutions is dedicated to helping you choose the right insurance coverage for your needs. Request a free insurance quote today!
