Is home insurance tax deductible?

Mon Sep 12 2022

Senior couple at their kitchen table working on their taxes

Let’s get straight to the point: you cannot deduct the premium you pay for your home insurance from your federal income tax returns.

That can be frustrating, especially for new homeowners who may not have realized all of the additional costs that come with buying a home, like home insurance, repair bills, and property taxes. However, there are some exceptions to this rule. Let’s take a closer look when home insurance is tax deductible.

When is homeowners insurance tax deductible?

Home insurance premiums usually aren’t tax deductible because most people buy homes for their personal use. But that means if your home is a business expense, then you may be able to deduct the cost of home insurance from your federal income tax.

For instance, you may be able to deduct your homeowners insurance costs on your federal tax return if you bought the home as a rental property. A rental property is a business endeavor, so many of the expenses associated with maintaining the property are deductible. This typically includes homeowners insurance.

If you do have a rental property, make sure that you have the right type of home insurance. You want landlord insurance and not a traditional homeowners policy. Sometimes called a rental dwelling policy, landlord insurance protects against the added risks that you face when you rent a property to others, including fair rental value coverage.

Additionally, you may be able to deduct a portion of your homeowners insurance payments if you run a business out of your home. The area you use as an office has to meet the criteria laid out by the Internal Revenue Service (IRS) in order to qualify for a tax deduction. It must be

  • Covered by your home insurance.
  • Regularly and exclusively used for business purposes.
  • Your business’ principal location.

Is private mortgage insurance deductible?

Private mortgage insurance (PMI) is a cost that you can deduct when filing your federal tax returns. It doesn’t matter if the property is your personal residence or a rental property – PMI is deductible in both cases.

You should note that home insurance and PMI are two different things. The former protects you if your property is damaged. But PMI is coverage that protects your lender if you fail to make loan payments. Homeowners usually only have to get PMI if they can’t make a 20% down payment.

What are other non-deductible home expenses?

As you can see with homeowners insurance, not every expense associated with your home is deductible. Here are some common expenses most homeowners pay that aren’t deductible when it comes time to file your tax return:

  • Wages for housekeepers, gardeners, or other domestic workers.
  • Homeowner associations fees for a primary residence.
  • Utility costs.
  • Depreciation.
  • Forfeited down payments or deposits.

Plan your budget to pay these necessary expenses, but don’t try to include them on your tax return’s itemized deduction list.

Common homeowners deductions

Home insurance may not be tax deductible, but there are still plenty of deductions that homeowners can look into. For example, you may want to talk to your tax preparer about the deductions available for:

  • Mortgage interest. You can deduct interest paid on the first $750,000 of your mortgage debt for your primary home or a second home if you bought the house after December 16, 2017. For homes purchased between October 14, 1987 and December 15, 2017, the mortgage debt limit is $1 million.
  • Home equity loan interest. Interest on a home equity loan is typically deductible as long as you used the money to renovate your home. The amount of this loan counts towards the mortgage debt limit listed above.
  • Medical improvement expenses. Making upgrades for medical purposes, such as installing ramps or walk-in showers, may be deductible if you can show that someone in your household requires the accommodations.
  • Discount points. If you’ve purchased mortgage points, also called discount points, to reduce your mortgage interest, then you may be able to deduct the full amount from your federal taxes if you meet the IRS criteria. Note that discount points are not closing costs or loan origination points – those are not tax-deductible.
  • Property taxes. Those who are single or married and filing jointly can deduct up to $10,000 of property taxes. Those who are married filing separately can only deduct up to $5,000.
  • Capital gains. If you sell your home for a profit, you may owe capital gains taxes. However, married couples can claim up to $500,000 in capital gains exclusion and individuals can claim up to $250,000 if they lived in the house for at least two of the last five years.

Learning about what is deductible and not deductible can help you better manage your home finances. While the homeowners insurance is not deductible, there are a lot of deductions that you can take advantage of to reduce the cost of home ownership.