Is Home Insurance Tax Deductible?
Generally, insurance policies, like a health insurance policy, are tax-deductible. This means the premiums that you pay for your health insurance policy are eligible for a tax deduction. However, the premium that you pay for your home insurance policy is not tax-deductible. This is because the premiums that you pay for your home insurance policy is considered as a non-deductible expense as your home is used for personal purpose i.e. for your living.
So, what does this mean to a homeowner? Well, this means, unfortunately, you cannot itemize the payments that you pay for your home insurance policy against theft, fire, and other losses.
A home insurance policy protects against any potential damages to your home and its other included areas like driveway, garden, fence, garage, and shed.
Home Insurance Cover for Owners of Small Business
It worth approximately nothing if you run a very small business in your home such as the business of gardening or lawn care. In such cases, your home insurance may provide coverage for up to some amount. So, if you run a business on your residential property then it is suggested to tell your insurance provider upfront and may ask whether it is covered in the policy or not.
However, if you run a large business in your home, such as you are running a day-care, then it will most likely not be covered. In such a case, you will need to take a specific insurance policy for business. So, for any business on your residential property, you will be required to purchase a commercial insurance policy.
Key Takeaways of a Home Insurance Policy:
Some of the points to consider about a home insurance plan are:
- The premiums that you pay against your home insurance policy are typically not tax-deductible.
- In special cases, however, there can be partially or wholly tax would be deducted as a business expense, for example, if you are a landlord.
- If your property or home is damaged due to any damage that is recognized by the government, then it can be possible to deduct the uninsured financial losses insured to your family because of this disaster.
- For most of the mortgage lenders, the cost of home insurance policy is non—negotiable.
- If you do work from home and use a room of your house as your office, then you can be able to get a deduction from a part of your home insurance policy.
Home Insurance Policy Can Be Tax Deductible in the Following Cases:
There are two special situations when you may get a tax deduction from your home insurance policy:
- If you are using your entire home or a part of it for business purposes: You can measure the square foot of the space of your home that is used for office purposes or the part that you have allocated as workspace. After this, you can calculate the percentage of the total home square foot and use that percentage to the premium and then deduct the resulting amount as expenses of a business. To understand a home office or home business more clearly it is said that not every room that has a desk is considered as a home office and can be considered for tax-deduction. A workspace qualifies for tax-deduction that has a free-standing structure or garage as long as it is completely devoted to the purpose of business. It has to be the principal place where the business is operated.
- If you are a landlord and get rental income from your house: The portion of your property that is used as rent is eligible to get a tax deduction from your home insurance policy. When you have many properties, which are used for rental income only, then the home insurance of all these properties are tax-deductible. The portion of tax-deduction of your home insurance’s premium is dependant on how much premium is covered under a rental property. For example, if you have rented a basement part of your house, then you can write off your home insurance premium that provides coverage for the basement. Additionally, if you own a separate home and have rented it out, then you can get the maximum of the tax-deduction under the landlord insurance policy that covers the rental units. For expanding the liability coverage, the landlords can opt for a rider cover out of many add-ons available for them.
The Bottom Line:
A home insurance policy is a necessity for making sure that your property, home, and possessions are safeguarded against weather, fire, liability, or theft. When you are taking out the home mortgage, then many lenders may require you to have a home insurance policy. So, even if a home insurance policy does not carry any tax benefit in it, it has several other advantages that are worth the cost that you are paying for it. So, do not just run behind the tax-benefits or tax-deductions instead see the benefits that are offered by your home insurance policy.
Written By: PolicyBazaar - Updated: 16 October 2020