Is Homeowners Insurance Tax Deductible?

Wondering if homeowners insurance is tax deductible? Uncover key details about tax deduction for homeowners.

Financial Planning
December 21, 2023
Is Homeowners Insurance Tax Deductible?

Homeowners insurance is a necessary safety measure associated with homeownership. And like many other expenses connected to your home, you might be wondering if you can write it off during tax season.

So, is homeowners insurance tax deductible? In most cases, no.

There are a few circumstances where you can deduct some or all of the cost of homeowners insurance as a business expense, but for most situations, homeowners insurance is not a tax-deductible item.

So what are the exceptions, and is homeowners insurance deductible on taxes for your situation? Read on to find out if you’re in the tax-deduction minority. 

Exceptions that Make Homeowners Insurance Tax Deductible

If you ask a tax professional, “is homeowners insurance deductible on federal income tax returns,” they’ll tell you that the costs need to be for business purposes or part of a specific type of loss to be deductible. 

Rental Property

So, is homeowners insurance deductible on taxes if you’re a landlord? Now we’re in “Yes” territory.

Renting property falls under business activities, so the costs that go into preparing and maintaining the property are business rather than personal expenses. You can deduct the entire cost of property insurance for a rental property. 

If you rent out a room or split property usage over the year between personal use and rental purposes, you can deduct the portion of insurance based on square footage or business use. Work with a tax professional or do your research carefully to get your numbers right before filing Schedule E, Supplemental Income and Loss, with your Form 1040.1

Business Use of Home

If you run a business from your home using dedicated space, then you can typically deduct the ongoing cost of that space—including homeowners insurance—under your business expenses. To do this, the space needs to be: 

  • Calculated in square footage as a percentage of the home1
  • Used solely for business purposes
  • Either an entire room or a defined portion of space

For instance, consider Eileen, who runs an Etsy storefront from her home selling little crocheted monsters. She uses a 120-square-foot room to manage the business that includes a desk area, packaging and shipping zone, and storage space for finished monsters. She also uses a six-square-foot closet in another room to store monster yarn and eyeballs. 

Eileen’s house is a tidy 1220 square feet, which means that her business space (120+6=126) comprises approximately 10% of her home. If she pays $1,000 annually in homeowners insurance, she can deduct $100 of that amount on Schedule C, Profit or Loss from Business, of Form 1040.

Theft and Casualty Losses

If your home is damaged during a federally declared disaster and your insurance company either denies your claim or pays it for less than the cost of your losses, you may be able to deduct that amount from your taxes.1 

Similarly, if you fall victim to theft and your home insurance doesn’t cover the full cost of the loss, you may be able to deduct it. Use the casualty and theft loss deduction on Schedule A, Itemized Deductions, of Form 1040—but do it carefully. This line item comes with some careful restrictions and calculations explained in IRS instructions (or by a tax professional). 

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What Are Tax Deductions for Homeowners?

If homeowners insurance is out for you, there are still other tax benefits of buying a home.

These include: 

  • Property taxes up to $10,000 (or $5,000 each if married filing separately2
  • Mortgage interest
  • Mortgage insurance discount points (a type of prepaid interest purchased at time of closing)
  • Home equity loan interest if the funds are used to substantially improve the property
  • Complete cost of the business use of your home
  • Mortgage insurance premiums1
  • Select home improvements for accessibility, medical needs, or energy efficiency

When you sell your home, you’ll also be able to deduct additional expenses, either directly or as a reduction to the cost basis of your home related to real estate capital gains tax. These include: 

  • Selling costs, including advertising, agent commissions, and attorney fees3
  • Most closing charges, fees, and taxes4
  • Certain home repairs and improvements 

Discover more on what closing costs are tax deductible when selling a home in our guide.

How to Eliminate 100% of Your Homeowners Insurance Cost

How would you like to remove the cost of homeowners insurance coverage from your budget entirely? With a residential sale-leaseback, you can sell your home, hand over major expenses, and keep living in your home as a renter for as long as you like. You’ll have: 

  • No more mortgage payments or debt
  • No property insurance or tax costs
  • No responsibility for major repairs 

If homeownership has become more of a burden than a joy, and if you’re ready to convert your equity to cash without moving out, Truehold's sale-leaseback could be a great fit for you. 

Ready to learn more? Call us today, and a Truehold Advisor will reach out to explain how our process works and answer your questions. 

Sources: 

  1. Policygenius. Is homeowners insurance tax deductible in 2023? https://www.policygenius.com/homeowners-insurance/is-homeowners-insurance-tax-deductible/
  2. Business Insider. 7 deductions homeowners can take to lower their income tax. https://www.businessinsider.com/personal-finance/tax-deductions-for-homeowners
  3. Realtor.com. 5 Tax Deductions to Take When Selling a Home. https://www.realtor.com/guides/homeowners-guide-to-taxes/tax-deductions-when-selling-a-home/
  4. LendingTree. Closing Costs That Are (and Aren’t) Tax-Deductible. https://www.lendingtree.com/home/mortgage/are-closing-costs-tax-deductible/
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