You pay premiums every month to protect your bank balance if something happens to your home. If you have a claim, though, you’ll typically have to pay a deductible before your insurance kicks in to cover the rest. Fortunately, you may be able to claim your homeowners insurance deductible on taxes, as long as the expense was related to a federal disaster, the property was a rental home or if part of your home is used for your business.
Although you can’t generally tax deduct your insurance deductible, you can in three instances: if the damage was related to a federally recognized disaster, you use part of your home for business or the damage was to a rental property you own.
About Home Insurance Deductibles
Typically, you pay homeowners insurance premiums as part of your monthly mortgage payment. You may not even give it a second thought until one day you have to file a claim. But when you do, you’ll inevitably learn that your insurance doesn’t pay for the full amount.
Although it can vary widely, generally homeowners choose a homeowners insurance deductible that ranges from $500 to $1,000. That’s money you have to pay out of pocket on any claim you make. In most cases, there’s no provision for claiming your homeowners insurance deductible on IRS tax returns, but there are a couple of exceptions to that.
Home Insurance Deductible on Taxes
If your homeowners insurance claim was related to something like a tree falling on your house or flooding due to a leaking sink, there’s no connection to a taxable event. However, there are isolated instances where you can claim your home insurance deductible on taxes. One of those is when your claim is related to damage from a federally recognized disaster.
In major disasters like hurricanes and tornadoes, the federal government will make an official declaration. This not only gets assistance to your area, but it creates an opportunity for you to get some relief at tax time. If you filed a claim for damage caused by one of these federally recognized disasters, you can claim the homeowners insurance deductible on IRS tax returns, but you won’t be able to deduct the portion of the damage covered by your insurance.
So, for example, if a federally recognized hurricane causes $5,000 of eligible damage to your home, and your deductible was $1,000, your insurer will write you a check for $4,000. You’ll pay $1,000 out of pocket for the repairs. At tax time, you can claim the $1,000 you paid on your taxes.
Rental Property and Insurance Deductibles
Another way homeowners insurance is deductible on IRS returns is if it's related to a rental property. If it’s a rental residence, all your own expenditures related to that property are tax deductible, including the premiums you pay each month. That includes any peril or liability insurance you pay on the property.
If you suffer damage due to a hurricane or flood, you can claim any expense, including your homeowners insurance deductible, on taxes. This goes beyond federally recognized disasters, though. In fact, even if your rental property suffers a theft, any losses can be claimed at tax time.
Business Use and Insurance Deductibility
If you use part of your home for business, you probably already know you can claim all expenses related to that portion of your home. That would make your homeowners insurance deductible on taxes, but only related to that portion of the home.
Although you can save some money by claiming expenses like your premiums and home insurance deductible on taxes, it does complicate things. If you use the simplified method to deduct your home office expenses, you won’t be able to claim any of your specific expenses. Still, if you do pay a deductible on a claim in a tax year, it might be worth it to calculate your actual expenses and make sure those exceed what you’d be able to claim with the simplified method.
- ValuePenguin: Is Homeowners Insurance Tax-Deductible?
- LendEdu: Average Homeowners Insurance Deductible
- SmartAsset: Rental Property Tax Deductions
- Ameriprise Financial: Tax Tips: Homeowners Insurance
- IRS: Home Office Deduction
- What are the tax benefits of homeownership? | Tax Policy Center
- Insurance Information Institute. "How to Save Money on Your Homeowners Insurance." Accessed April 1, 2020.
- Insurance Information Institute. "9 Ways to Lower Your Auto Insurance Costs." Accessed April 1, 2020.
- Insurance Information Institute. "12 Ways to Lower Your Homeowners Insurance Costs." Accessed April 1, 2020.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.