Can I Claim Home Insurance on My Taxes?
Clarify the tax treatment of home insurance premiums. Understand when these costs are deductible and when they are not.
Home insurance provides financial protection against damages to a dwelling, personal belongings, and liability for accidents occurring on the property. It covers events such as fire, theft, and certain natural disasters. While protecting a home is a prudent financial decision, premiums paid for home insurance on a personal residence are not tax-deductible.
Home Insurance as a Personal Expense
The Internal Revenue Service (IRS) classifies home insurance premiums for a primary residence or a personal vacation home as non-deductible personal living expenses. This classification aligns with other everyday costs like utilities, groceries, or commuting expenses, which are not eligible for tax deductions. The rationale is that these expenses are incurred to maintain a personal asset and do not directly contribute to generating taxable income.
Since a personal home is not considered a business asset, its related costs, including insurance, are treated differently from expenses incurred in a trade or business. For most homeowners, the premiums paid for coverage against property damage, theft, or liability are a cost of owning and maintaining their personal living space. This rule applies even if the premiums are included as part of a mortgage payment.
When Home Insurance is Deductible
While home insurance premiums are not deductible for personal use, specific circumstances allow for deductibility when the property or a portion of it is used for business or income-generating activities.
Rental Properties
One common scenario involves rental properties. If a homeowner rents out a property to tenants, the insurance premiums paid for that property are considered ordinary and necessary business expenses. These expenses are deductible against the rental income generated by the property and are reported on Schedule E (Form 1040). This applies whether the entire property is rented or only a portion, in which case the deduction is proportional to the rented space.
Home Office Use
A portion of home insurance may also be deductible for qualified home office use. Self-employed individuals, including freelancers and independent contractors, can deduct a percentage of their home insurance if a part of their home is used exclusively and regularly as their principal place of business. This deduction can also apply if the home office is where clients or customers are regularly met, or if it is the sole fixed location for storing inventory or product samples. The deductible amount is calculated by prorating expenses based on the percentage of the home’s square footage used for business purposes. For example, if a 1,500-square-foot home has a 150-square-foot office, 10% of the home insurance premium could be deducted.
Taxpayers can use the actual expense method, which often involves Form 8829, to calculate and report these deductions, or they can opt for a simplified method. The simplified method allows a deduction of $5 per square foot of home office space, up to a maximum of 300 square feet, resulting in a maximum deduction of $1,500. The Tax Cuts and Jobs Act (TCJA) of 2017 suspended the home office deduction for W-2 employees from 2018 through 2025. Therefore, only self-employed individuals can claim this deduction on Schedule C (Form 1040).