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Homeowners insurance is a key expense to consider when buying a home. And in areas that have been hit by wildfires or other natural disasters, that expense can be substantial. If your lender handles your premium payments, the cost of homeowners insurance will be included in your mortgage payment. Unlike mortgage interest, however, homeowners insurance cannot be deducted on your federal tax return—even if you itemize your deductions.
There are two exceptions, both of which involve using your home for business purposes. Here's how the IRS views homeowners insurance and how it might be deductible in certain cases.
When Can You Deduct Home Insurance on Taxes?
Homeowners insurance premiums are not directly deductible on your personal tax return. This is true whether you take a standard deduction or itemize. IRS Publication 530: Tax Information for Homeowners lists "Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance" under "non-deductible expenses."
That being said, there are a few instances where your homeowners insurance may be deductible or partially deductible.
When Homeowners Insurance May Be Tax-Deductible
You may be able to deduct all or part of your homeowners insurance premiums if you rent your home out to tenants or if you use your home as a qualified home office.
Using Your Home As a Rental Property
When you rent your home out, the expenses you report on Schedule E, Supplemental Income and Loss include cleaning and maintenance, repairs, utilities and insurance. These expenses offset the income you take in from rent and are a legitimate business deduction.
Maintaining a Home Office
If you're self-employed, operate a business out of your home and maintain a dedicated space for a home office, you may deduct a portion of your home expenses, including homeowners insurance, from your business income. To determine the percentage you can deduct, measure your dedicated office space and divide the square footage by the total square footage of your home. If, for example, your home office occupies 10% of your home's square footage, you can deduct 10% of home expenses like utilities, repairs and home insurance on Schedule C, Business Profit and Loss.
Tax Deductions for Homeowners
While you may not be eligible to deduct homeowners insurance premiums on your tax return, you may be able to deduct other common expenses. Here are a few to consider on your next tax return:
Mortgage Insurance Deduction
When you put less than 20% down on a mortgage, your lender may require you to pay for private mortgage insurance (PMI). Mortgage insurance premiums on your qualified home—defined as your main home, a home that is being constructed or a home you also use as a home office or residential rental—are deductible when you itemize. Income limits apply: If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your mortgage insurance deduction may be reduced or eliminated.
Mortgage Interest Deduction
Mortgage interest on your home is deductible when you itemize deductions on your tax return. The loan can be a first or second mortgage, home improvement loan, home equity loan or a refinanced mortgage, but the interest is only deductible if the loan is used to buy, build or substantially improve your home.
Additionally, if you purchase your home between January 1, 2018 and January 1, 2026, your mortgage interest deduction only applies to your first $750,000 of mortgage debt ($375,000 if married filing separately).
Property Tax Deduction
Any state or local real estate taxes you pay on your qualified home are deductible if you itemize on your tax return. The tax must be assessed uniformly throughout your community and cannot be in exchange for privileges or services. This deduction is limited to $10,000, or $5,000 if you are married filing separately.
You may also be eligible to deduct prepaid mortgage interest (points) on a home purchase or costs related to medical home improvements. Thinking of adding energy-efficient upgrades? Residential clean energy credits may provide tax credits, which you can deduct dollar-for-dollar from your tax bill, for solar panel installation and other energy-saving upgrades to your home.
The Bottom Line
Although most homeowners can't take a deduction for homeowners insurance, many costs associated with homeownership are deductible if you itemize. On the other hand, if you use your home as a rental property or are self-employed and maintain a home office, you can use all or part of your homeowners insurance costs to offset your income.