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Is homeowners insurance tax deductible in 2021?

Fact-checked with HomeInsurance.com

Finding ways to save on taxes is essentially a universal practice. If you’ve ever wondered whether your homeowners insurance is tax deductible, the answer is generally “no.” However, there are instances where your taxes and homeowners insurance can have an impact on each other. Let’s take a look at how it works.

What is a tax deduction?

Each year, you pay taxes based on the amount of income earned during the previous year. A tax deduction reduces the amount of income on which you can be taxed. For example, if you earned $50,000 the previous year, but you can claim $5,000 in tax deductions, then as far as the IRS is concerned, your taxable income is $45,000 — which effectively reduces the amount of taxes you’ll owe.

Deductions vary depending on what sort of tax documents you are filing and your own circumstances. In 2019, the standard deduction for someone filing as a single person is $12,200. If you choose this deduction, that amount will be subtracted from your annual income, leaving you with the total taxable income to calculate taxes owed.

If you itemize your deductions, there’s a little more math involved. Itemizing means that you break out your various deductions into separate categories, and for certain people, this can result in a more favorable tax rate. We have included some of the reasons you might want to itemize your deductions below.

Homeowners insurance tax deductions

There are several circumstances in which tax deductions can help you as a homeowner. Working from home is one time when you can deduct a portion of your homeowners insurance payments from your taxable income. There is also tax relief in some cases for homeowners who have dealt with weather-related or other major disasters.

Work-from-home tax deductions

If you are a freelancer, independent contractor, or sole proprietor of your own business that you run from your home, you can typically deduct a portion of your home expenses from your taxable income. This is a highly nuanced practice though, and is best determined with the assistance of a Certified Public Accountant or other tax professional.

Some deductions rely on calculating the percentage of your home office as it relates to expenses. Say your home office accounts for 10% of the total square footage of your home. Using that as a base calculation, you could potentially deduct up to 10% of the heating costs, lighting bills, and other utilities that pertain to that space, and take the total as a deduction. It’s important to note that unless it’s insurance payments on a rental property that you own, homeowners insurance is never tax deductible.

There are key restrictions to home-office deductions. The space you claim needs to be used primarily (in some cases, exclusively) for your business — it can’t be a room that is normally your bedroom and just happens to have a desk in the corner. In addition, it should be your regular place of business, and not just a spot where you get caught up on work after a long day at the office, or where you are temporarily required to work-from-home. When in doubt, speak with a tax professional to determine which deductions you are entitled to.

COVID-19 and tax deductions

The coronavirus pandemic has changed our world, with some estimates saying as much as 42% of the workforce is now working from home. So that means that many more people are eligible for work-from-home tax deductions, right?

Unfortunately, no. Since the passing by Congress of the Tax Cuts and Jobs Act of 2017, which greatly increased the standard deduction, individuals who work from home for a company — as opposed to being self-employed — can no longer take the home office deduction. And that goes for those who are, for the time being, working from home due to the pandemic.

The pandemic has resulted in tax benefits for businesses which may help you out, such as the paid leave for workers in small and mid-sized businesses. But as of this moment, there is no tax benefit for you if you’re temporarily working from home due to COVID-19.

Tax deductions after a federally declared disaster

There is another circumstance that may yield tax benefits for you, related to federally declared disasters. This happens when a wide-spread disaster is recognized by the federal government, opening the door to funding and the ability to exercise emergency plans. Often, these are weather-related situations such as hurricanes or large-scale flooding.

If your home is in an area that has been declared a federal disaster site, and you file a claim with your homeowners insurance that is either denied or only partially reimbursed, you may be able to claim a portion of the uninsured debts that you’ve incurred due to the disaster.

This process can take a little work. First, you must file your homeowners insurance claim as soon as possible after the disaster. When you receive the estimate from your insurer, the math kicks in. Based on the amount of damage costs not covered by insurance, a certain limit will be subtracted (usually $100), then 10% of your adjusted gross income is also taken into account. The remaining balance is what you may deduct from your taxes. 

So let’s say that a devastating hurricane tears the roof off your house. It costs $15,000 to repair the roof, but insurance payout and your deductible only cover $10,000, leaving you with about a $5,000 loss. From the amount of loss, you’d subtract the $100 limit for a total of $4,900. Then factor in a subtraction of 10% of your income, which we’ll say comes out to $4,000. Subtract that from the $4,900, and you would get a total of $900 that you can declare on your taxes as a deduction. Again, it’s recommended that you work with a tax professional to determine how best to calculate federal disaster deductions. 

Private mortgage insurance tax deductions

If you made an initial down payment on your house of less than 20% of the building’s selling price, your mortgage lender may have required you to invest in private mortgage insurance, or PMI. 

Before 2018, the amount you paid for PMI would have been deductible. But legislation passed that year that took away the deduction. Currently, the only tax-deductible part of your mortgage payment is the interest you are paying on that mortgage.

Tax deductions on rental properties

Another way you can reap tax benefits from property ownership is if you own rental properties. The insurance costs that you incur for those properties, whether it’s a condo that you rent out or a vacation home or other property, can be considered tax deductible since they are business expenses. 

If a portion of your primary residence is rented out, you may be eligible to write off the rented portion. So if you have a spare bedroom and bath that you rent out to a local college student, and that space is roughly 15% of your home’s floor space, you could potentially deduct a percentage of your homeowners premiums. Speak to a tax professional to determine the exact amount that can be deducted based on your circumstances.

Other home expenses that can provide tax savings

If you or someone in your home has a disability that requires accommodations such as a ramp or bathroom modifications, the cost of those home improvements is typically tax deductible. Other deductions to explore include those for your property taxes, and another on the interest that you pay on your mortgage, which can be significant in the early years of the loan.

Many of the deductions we’ve talked about require an itemized tax return — which can be complex. If you’re unsure of your deductions or are afraid that you’ll miss something that might reduce your taxes, it’s a good idea to ask someone knowledgeable for help, or take your taxes to a tax preparer or certified public accountant so you know you’re paying what is owed to the government and getting back what you may be owed.

The takeaway

Homeowners insurance isn’t tax deductible, but there are ways to reduce your taxes when you’re a homeowner.

  • Tax deductions can lower your taxable income amount.
  • If you work from home, you can sometimes deduct insurance premiums for the area you use for business purposes.
  • Those in a federally declared disaster zone may be eligible for additional deductions.
  • Insurance paid on rental properties merits a deduction as well.
  • For complex tax returns, it’s best to have professional help with your taxes.

Can you write off homeowners insurance deductible on a claim? In most cases, no. There are limited exceptions to this depending on whether or not you own a rental property as a business. Deductions for home-offices are available under certain circumstances, but these are nuanced and sometimes complicated to determine. For this reason, we recommend you seek professional tax advice for determining which deductions you qualify for.

Other possible tax benefits include claiming uninsured damage after a federally declared disaster, as well as accounting for the cost of improvements you’ve made in your home to accommodate someone with a disability.

Mary Van Keuren

After 30 years as a writer and editor in academia, Mary now writes full-time for the insurance and finance industries. Her work has appeared on Reviews.com, TheSimpleDollar.com and Bankrate.com, as well as other consumer-focused websites.

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