Is Home Insurance Tax-Deductible?
Most homeowners end up paying more than $1,000 a year on home insurance. It’s enough to make anyone look for a tax break.
For most people, homeowners insurance premiums aren’t tax-deductible. However, if you’re a freelancer, 1099 contractor, or self-employed person, you might be able to write it off — as long as you do some of your work from home.
What is home insurance?
Before we dig into who can take this tax write-off, let’s make sure we’re on the same page. The world of insurance can be confusing, after all.
Home insurance, also known as homeowners insurance, covers you in case your home — or the personal property you keep inside it — is damaged or lost. (The circumstances of this loss can include weather conditions, but also crimes like theft.)
Expect your homeowners insurance to kick in situations like:
- A fire destroying your deck
- Smoke ruining your furniture
- A tree failing on your roof
- An act of vandalism forcing you to repaint
These policies also come into play if someone gets injured on your property decides to sue you — or if their medical bills need to be paid.
However, a standard homeowners insurance policy generally won’t cover damage from earthquakes or flooding. Your coverage may also not extend to valuables, like jewelry or paintings.
What homeowners insurance is not
Home insurance is not to be confused with mortgage insurance.
While homeowners insurance protects you, private mortgage insurance, or PMI, protects your lender in case you stop being able to make payments. (PMI is automatically added onto the cost of your home loan if you make a down payment of less than 20%.)
Unlike with home insurance, homeowners who pay PMI can choose to deduct it from their taxes if they itemize their personal deductions. More on this later!
Who can write off home insurance on their taxes
W-2 employees can’t write off homeowners insurance — not even if they work from home. The IRS simply doesn’t recognize it as an itemized personal deduction.
However, freelancers, independent contractors, and small business owners, can sometimes write it off as a business expense. (Consider it one of the perks of working for yourself!)
Here’s who’s eligible to take advantage of this take break:
- Self-employed people who use a home office
- Airbnb hosts and rental property owners
Deducting home insurance as a self-employed person
If you’re self-employed and work from home, you can write off part of your homeowners insurance costs by taking the home office deduction.
This valuable tax break lets you claim more than just your monitor and your desk chair. Because your home insurance premiums help protect your home office, it counts as a related cost that you can write off.
Qualifying for the home office deduction
The home office deduction is a lot less restrictive than many freelancers and small business owners realize. A lot of people who actually qualify end up missing out, leaving potentially thousands of dollars on the table at tax time.
To find out if you qualify, you can take our home office deduction quiz. Otherwise, you should definitely be aware that, to claim the deduction, your home office:
- Doesn’t have to be a separate room — just a dedicated area in your house that you only use for work
- Doesn’t have to be used more than weekly
- Doesn’t have to be used year-round
Let’s put this into perspective with an example.
Say you’re an online seller who works at a desk in your bedroom three days a week. (The rest of the time, you’re going to trade shows, networking with colleagues, and selling in-person at farmers markets and fairs.)
Even though you don’t use your workstation every day, you’re still eligible to claim a home office — which means you can write off a portion of your homeowners insurance.
Now, say you go on hiatus in the summer to work a seasonal W-2 job, abandoning your at-home workstation till September. On your tax return, you can still claim home office expenses for the months you spent regularly working at your desk.
How to deduct homeowners insurance through your home office
The home office deduction lets you write off part of your homeowners insurance premiums.
How much? That’s based on the percentage of your house or apartment that’s used for business. To figure this out, you’ll need to figure out the square footage of your workstation, then divide it by the total area of your home.
For example, let’s say your home office space, inside your 800-square foot home, is eight feet by 12 feet — 72 square feet total.
Because 72 square feet divided by 800 square feet is 0.09, you’d be able to write off 9% of all your home office expenses.
If your homeowners insurance costs $1,112 for the year, you can claim $100.08 as a tax write-off.
Deducting home insurance as a rental property owner
Freelancers and independent contractors who work from home aren’t the only 1099 workers who can deduct home insurance on their taxes. If you rent out a home that you own — say, as an Airbnb host or even a real estate investor — you can also claim your premiums as a business expense.
Keep in mind: If you only rent out a portion of your home, you’ll have to deduct your homeowners insurance costs on a proportional basis. For example, say you list your basement on Airbnb, keeping the rest of your home for your personal use. If your basement takes up 25% of the total square footage in your house, you’ll be able to deduct 25% of your home insurance premiums.
If you rent out a separate property, though, the cost of insuring it is 100% tax-deductible. And if you're lucky enough to have more than one rental unit, you can deduct the insurance premiums for all of them.
More home-related business expenses you can write off
Insurance isn’t the only home-related cost you can write off as a business expense. If you qualify for home office deductions, don’t forget about:
- Repairs and maintenance
- Professional cleaning
- Cleaning supplies, soap, and toilet paper
- Your home security system
- Your landline, if you have one
Personal tax deductions for homeowners
We talked earlier about the difference between personal deductions and business expenses. Homeowners insurance isn’t a personal deduction. But for plenty of 1099 workers who work from home, it can be a business expense.
Being a homeowner comes with plenty of costs that are personal deductions, though. That means you can deduct them from your tax return whether or not you have 1099 income — as long as you choose to itemize instead of taking the standard deduction. (Remember, any business expenses you can claim are taken on top of the standard deduction!)
If you’re a self-employed homeowner, it might make sense to look into the following tax breaks too. Keep in mind, though, that the standard deduction is $12,000, and the tax breaks you get from these personal deductions may not always make itemizing worthwhile.
This cost comes into play when you first get your home loan. Mortgage points — also known as discount points — can be bought when you close on your home to bring your interest rate down.
You can write off the full amount you spent on points the year you buy them.
Private mortgage insurance (PMI)
If you have PMI, you’ll be able to deduct the full amount paid for it as long you have an adjusted gross income of less than $100,000 (if you’re single) or $50,000 (if you’re married and filing jointly).
After that, the amount of your deduction starts to go down with income, dropping by 10% for every $1,000 your income goes over the threshold. (That means that, by $109,000 for single filers and $54,000 for joint filers, the deduction goes away completely.)
The amount you paid in mortgage interest can be found on Form 1098, which you’ll get from your mortgage lender. You can write off the interest you paid on the first $750,000 of your personal residence.
If you’re single, you’ll be able to write off up to $5,000 in property taxes. For taxpayers who are married and filing jointly, that goes up to $10,000.
Renewable energy upgrades
If you invest in energy-efficient home improvements — think solar panels and wind turbines — you can take the Residential Renewable Energy credit.
Because this is a credit instead of a deduction, it works a little differently than the other tax breaks we’ve been talking about. Instead of lowering your taxable income, a credit will directly reduce your tax bill, dollar for dollar.
Through this credit, you can get back up to 30% of the cost for each upgrade you install.
Planning on selling your home? Thanks to this deduction, you won’t have to pay taxes on the amount you stand to profit.
There are two restrictions:
- The home has to have been your primary residence for two of the past five years, and
- You can't have taken this deduction on another home in the last five years.
As long as you meet those requirements, you can avoid capital gains tax on up to $250,000, if you’re a single filer, and up to $500,000 if you’re married.
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At Keeper Tax, we’re on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please email email@example.com if you have questions.