Generally, homeowners insurance is not tax-deductible, nor are premiums, even though your premiums may be included in your mortgage payments. Why? Because homeowners insurance is not considered nondeductible expenses by the Internal Revenue Service (IRS).
What does this mean for homeowners? It means you, unfortunately, cannot itemize any payments for home insurance—including fire, theft, and comprehensive coverage—nor title insurance on your tax return.
A homeowners insurance policy offers protection against potential damages to one's home. In addition, it typically covers a homeowner's driveway, fence, garden shed, and garage.
Homeowners Insurance Coverage for Small Business Owners
It is worth noting if you run a very small business on your property—like lawn care or gardening business, your homeowners insurance might cover up to a couple of thousand dollars for it. If you do run a business on your property it is recommended you ask your homeowners insurance company upfront if it is covered or not.
If you run a larger business out of your home, it likely will not be covered, and you would need to take out an insurance policy specifically for the business.
For example, if you run something like a daycare in your house, for instance, your homeowners insurance policy would most likely require you to take out a commercial policy for your business.
- Homeowners insurance premiums are typically not tax-deductible.
- In special cases, however, they might be wholly or partially tax-deductible as a business expense: for instance, if you are a landlord.
- If your home or property is damaged in a federally recognized disaster, it may be possible to deduct uninsured financial hits your family incurs due to the disaster.
- Homeowners insurance is a non-negotiable cost for most mortgage lenders.
- If you work from home and use a room in your house as a designated office (i.e., not the living room), you may be able to deduct part of your homeowners insurance.
How Homeowners Insurance Can Be Tax-Deductible
There are, however, two special instances in which you can likely deduct insurance payments from your home.
- If you use your home or part of it for business. You may be able to take the square footage of your qualified home office space (or the part allocated for working in) as a percentage of the total home square footage; you'd apply that percentage to your premium, and deduct the resulting figure as a business expense.
- If you're a landlord and receive rental income from your home. Your homeowners insurance on the portion of the property used as a rental becomes tax-deductible. When you own several properties and those properties are used only for rental income, then all of the homeowners insurance is tax-deductible.
Landlords cannot subsequently deduct the homeowners insurance premiums they pay for their own residences on their tax returns.
The Bottom Line
Homeowners insurance is a necessity to make sure your home, property, and possessions are protected against fire, weather, theft, or liability. In fact, if you're taking out a mortgage, many lenders require you to have a policy. So, if even if it doesn't carry a tax break with it, homeowners insurance is worth the cost.