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When it comes time to file your income taxes, you want to explore every possible way to save money. If you're a homeowner, chances are you have wondered whether or not your home insurance premiums are tax-deductible. In short, payments toward your personal home insurance policy are not tax-deductible.
However, there are some insurance-related ways to receive a tax break. Read on to learn more about the types of insurance that are tax deduction-eligible.
If you have specific questions about your tax situation, please contact a tax professional.
The Internal Revenue Service (IRS) assesses your overall income over the previous tax year when determining how much you owe. However, you have the opportunity to deduct some of your taxable income when filing, giving you the chance to write off certain living expenses and save money on your amount owed.
There are two different types of deductions you can claim: a standard deduction and an itemized deduction.
Homeownership can be expensive. While insurance payments on personal homeowners insurance policies are not eligible deductions, there are a few cases in which home insurance costs can be claimed as deductions, thereby reducing your tax bill:
If you rent out an extra room, garage apartment, or second home, you may be able to deduct those insurance payments from your taxes. Generally, insurance premiums paid to cover your rental units can be claimed as a tax deduction since they are considered business expenses. Your landlord insurance covers damage to the rental property and also provides liability coverage to protect your personal assets. This coverage — along with any insurance payments covering employees related to your rental business — can be claimed as an itemized deduction.
If you are self-employed or your office is part of your home, you may be eligible for a home office deduction. Many homeowners insurance plans provide the option of adding an endorsement to cover business equipment. The IRS allows citizens to claim certain expenses and equipment used for business purposes as itemized deductions.
There is a simplified method of filing a home business deduction determined by the square footage of your office space, but this does not take into account your individual insurance expenses. The standard method allows you to itemize specific expenses, including insurance costs, utilities, repairs, and more. This method also requires you to figure out what percentage of your home is devoted to business activity.
Banks that provide loans to home buyers want to protect their interests. Therefore, many will require homeowners who don’t make a 20% down payment to carry insurance that protects them in the event that the homeowner defaults on their payments. This is known as mortgage insurance. The amount you pay in private mortgage insurance (PMI) can be claimed as an itemized tax deduction, though there are some restrictions if you make more than a certain amount peryear.
Owning a home comes with some tax implications. Property taxes can be quite expensive, depending on where you live. But there are some ways to reduce the amount of taxes you owe. Have a look at a few other ways to save below.
If you want to get the most out of your tax return, it pays to do some research. Consult with your insurance company and tax experts to figure out the best ways to save. If you’re still looking for a great homeowners insurance policy, The Zebra can help by providing accurate quotes from a number of top companies, helping you find the best policy for your needs.