Is Homeowners Insurance Tax Deductible on Rental Property?

Homeowners insurance premiums paid on a property used for rental purposes are generally tax-deductible as a business expense. The Internal Revenue Service (IRS) considers these costs to be ordinary and necessary for the activity of earning rental income. This stands in direct contrast to the insurance on your personal residence, which is not deductible.

Deductibility for Different Rental Scenarios

The ability to deduct insurance premiums is most straightforward when a property is used exclusively for rental purposes. In this case, the entire premium for a landlord insurance policy is deductible. This type of policy is distinct from a standard homeowner’s policy and is designed to cover risks associated with non-owner-occupied rental properties, such as liability and property damage.

A more complex situation arises when you rent out a portion of your primary residence, creating a mixed-use property. You can only deduct the portion of your homeowner’s insurance premium that corresponds to the rented space. The most common method for this allocation is based on square footage. This approach requires you to divide the square footage of the rented area by the total square footage of the home to find the deductible percentage.

For example, if you rent out a 400-square-foot room in a 2,000-square-foot house, you would be able to deduct 20% of your annual homeowner’s insurance premium. This calculation ensures that only the business-use portion of the expense is claimed. Apply this allocation method consistently to other shared expenses like utilities.

Special rules apply to vacation homes and short-term rentals that experience both rental and significant personal use. The IRS has specific guidelines, known as the “14-day rule.” If you rent the property for 14 days or fewer during the year, you do not have to report the rental income, but you also cannot deduct any rental expenses, including insurance.

If you rent the property for more than 14 days and also use it personally, you must allocate expenses between rental and personal use. For these properties, the total amount of deductible rental expenses, including the allocated portion of insurance, cannot exceed the gross rental income received. This limitation prevents taxpayers from claiming a loss on a vacation property that is primarily for personal enjoyment.

How to Calculate and Report the Deduction

The calculated insurance expense is reported on Schedule E (Form 1040), Supplemental Income and Loss. This form is used to report income and expenses from rental real estate. The deductible insurance amount is entered specifically on line 9, labeled “Insurance.” Each rental property you own should be reported on a separate Schedule E, requiring you to allocate costs appropriately if a single policy covers multiple properties.

You should keep copies of your insurance policy statements showing the premium amounts paid throughout the tax year. For mixed-use properties, also retain documentation that supports your allocation calculation, such as a floor plan with clear measurements of the rental space and the total home area.