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Tax season is above us. So it’s time to take a closer look at your finances, especially when it comes to deductions. Usually, you cannot list your home insurance as a tax return deduction. However, if you are using your home as something other than your primary residence – if you run a business from your home or rent a completed basement, you may be able to deduct housing costs, including the home insurance premium. Bankrate’s insurance editorial team is here to roam homeowners with what you need to know about insurance contracts before filing taxes.
Is home insurance tax deduction possible?
No; Home insurance is usually not tax-deductible if you use your home as your primary residence. For reference, tax deductions reduce taxable income. There are two ways to claim a deduction by accepting a standard deduction or by itemizing it. Not all qualify as deductions. The IRS has strict rules in terms of whether they are eligible or not.
learn more: Standard and itemized deductions: How to determine
When can I get tax deductible on my home insurance?
Everyday People – People who use their home as a residence and do nothing else cannot deduct their home insurance premiums on their income tax returns. However, there are some special cases.
- Rental income: If you own other properties you rent to your tenant, you may be able to deduct those premiums as rental expenses. Other common rental fee deductions include cleaning, maintenance and real estate utilities.
- Home Office: If you are self-employed and have dedicated home office space, you may be able to deduct some of your home insurance premiums.
What are tax-deductible expenses for homeowners?
Home insurance is generally not tax-deductible, but other housing costs include:
- Energy-efficient home improvements: Increased energy efficiency in your home can lower your energy bill and offer federal tax credits up to $3,200 for your major residence. Tax credits vary depending on the improvement, up to $500 per item. Renewable energy installations have a different tax credit maximum under the 2021 Consolidated Budget Act, offering up to 30% tax credits for renewable energy systems.
- Mortgage interest: Itemizing deductions may allow you to completely deduct the amount you pay annually on your mortgage interest on your secured obligation. The amounts that can be deducted will depend on the date you retrieved your mortgage, the amount of funding you raised, and how you use your revenue. For homes purchased before December 15, 2017, the maximum amount of debt allowed for interest deduction is $1,000,000. Or $500,000 if you are married and apply separately. The debt limit for homes purchased after that date is $750,000. Or $375,000 if you’re married and submit separately. If you rent a second home, restrictions apply.
- Fixed Asset Tax: Usually, items on your tax return will deduct state and local real estate taxes on primary and secondary housing. Currently, this tax credit has a $10,000 cap.
- Capital Cost: If you are making home improvements for personal reasons, the costs are generally not tax-deductible. However, if the improvements you make are medically necessary for yourself, your spouse, or your dependents, you may be entitled to deduct capital costs. Necessary medical improvements include building entrance or exit lamps, enlarged entrances and exits, installation of porches or interior lifts, and changes to hallways and kitchen cabinets. Generally, to claim medical expenses, your expenses must exceed 7.5% of your adjusted gross income, and the costs of these types of capital improvements must be reduced by increasing the value of your home.
- Home Loan Points: Mortgage points allow you to lower your interest rate in exchange for your fee. If you purchase a home after December 15th, 2017, your mortgage points are tax deductible with mortgage debt of up to $750,000. If you bought your home by that day, they are tax-deductible mortgage debt of up to $1 million. If you itemize your deductions, they are tax deductible.
Please note that if you receive a standard deduction, many of the above general tax-deductible costs are already included and cannot be deducted individually. To ensure you take advantage of all eligible deductions, consult a tax professional.
Types of tax forms for homeowners
For homeowners navigating the tax process, it is important to understand the various tax forms homeowners may encounter for deductions and reporting.
| Tax Form | Form type | Use cases |
|---|---|---|
| Schedule A (Form 1040) | Itemized Deductions | Homeowners are typically used to itemize deductions such as mortgage interest, property taxes, and, in certain cases, disaster losses that are not covered by insurance. |
| Schedule C (Form 1040) | Profit or loss from the business | It can be used by homeowners running their businesses from home or self-employed homeowners who work from home, and can deduct some of the home costs associated with business activities. |
| S Schedule E (Form 1040) | Supplementary income and losses | For homeowners who report rental income and rent some or all of their property to deduct applicable expenses such as maintenance, insurance, depreciation, and more. It is also used by people who own properties for rent. |
Depending on the homeowner’s circumstances, other forms may take action, such as energy-efficient upgrades and forms related to casualty losses. Homeowners should consult with tax professionals to ensure they use the correct form and make the most of their potential deductions.
