There are plenty of expenses that come along with owning a home, which is why understanding the tax breaks and perks that you can tap into is important in leveraging your finances. In an attempt to recoup as much money as possible, a lot of first-time homeowners find themselves asking: Is homeowner’s insurance tax deductible? The short answer is probably not, but there are plenty of other deductions you should know about.
We’ll skip right to it. Is homeowners insurance tax deductible? Unfortunately, it usually is not. While essential to protecting your finances in the event of a fire, flood, break-in, or natural disaster, your homeowner’s insurance premium cannot be deducted from your tax return. However, there are plenty of housing-related expenses that you can probably deduct, and it’s worth knowing about them.
You’ve got your answer to your main question, but even though you can’t deduct the cost of your homeowner’s insurance, you can likely take these deductions to help recoup some of your housing costs.
Not only will energy-efficient upgrades help reduce your utility bills, but you can even score a tax deduction if you play your cards right. For this deduction, look to the Residential Renewable Energy tax credit. This tax credit will apply if you add wind, geothermal, fuel-cell, or (most popularly) a solar power system to your property.
You might use one of these alternative energies to power your whole home, but more often than not, homeowners buy into a specific item, like a solar-powered water heater or a supplementary power system like a few solar panels. Best of all, this credit applies to both primary and secondary homes in most cases. You can get a credit for up to 30% of the cost of the upgrade, with no upper limit in most circumstances.
If you make general improvements to your home, you cannot deduct them until you sell your home, which means you need to keep a record of them. But, in the event that you need to make a change to your home for a medical reason, you are actually able to deduct those expenses in the year that you pay for them.
The change you make may qualify as an upgrade, improvement, or just an adjustment (like installing a wheelchair ramp). Common changes that fall under this category include new handrails, wider doorways, or even a home elevator. Merely making your home more accessible is not enough, though; you need to prove that someone in your household actually requires the change if you wish to deduct it.
To take this deduction, you’ll also need to itemize using Schedule A of form 1040. Additionally, there are other requirements — like you can only claim expenses that exceed 10% of your AGI (Adjusted Gross Income). If the change is expected to increase the value of your home, you’ll also need to deduct the expected increase from the claim amount. So, there will be math involved, but it’s worth the effort if you plan to put a lot of money into changes.
If you’re self-employed and you use any part of your home for work, you can take the home office deduction. Unfortunately, if you’re one of the hundreds of thousands of people who joined the work-from-home movement over the last couple of years, you cannot take this deduction (yet).
The first way to calculate your deduction is to add up all of your expenses associated with your home-based business. This would include a small percentage of what you pay for utilities, internet, maintenance, and so on. It’s best to ask a tax advisor what percentage you should take, and it will be based on the size of your office and how much time you spend working there.
The simpler way to calculate this deduction is to estimate the size of the office and deduct $5 per square foot. So, if your room is 10×10, that’s a 100 square foot office that adds up to a $500 deduction each year.
If you happen to have tapped into the Airbnb movement or you own a rental property, you could qualify for a deduction for your rental expenses. This deduction applies to practically any rental income you make, whether it’s a spare bedroom, basement apartment, or an entire house.
You’ll need to take note of all associated expenses throughout the year, like maintenance, repairs, and utilities. Then, when you file Schedule E of form 1040, you can deduct these expenses from your rental income.
It’s straightforward enough to do on your own, but if you really want to maximize this deduction, talk to a tax advisor for some tips specific to your situation. After all, you’ve already asked, “Is homeowners insurance tax deductible?” and you know the answer is no. But you just might be able to deduct insurance associated with your rental property, and that’s a win-win!
One of the ongoing costs of homeownership is property taxes. Luckily, you can deduct the amount you pay in property tax if you choose to itemize your expenses. There are caps that you need to be aware of based on your filing status, though. For instance, a married couple filing jointly cannot deduct more than $10,000 in property taxes annually, and an individual filer cannot deduct more than $5,000 annually.
Despite the cap, it’s still worthwhile to deduct your property taxes. To do so, you’ll need to check Schedule A of form 1040. But, if you aren’t already itemizing your return, this could mean a big step. For most people, when they get to the point of being a homeowner, it often makes more sense to itemize, although it’s more time-consuming, so look closely at your deductible housing expenses and see how much you can save.
So, is homeowners insurance tax deductible? Sadly not. But, while you cannot deduct your premiums on your tax return, you can save money by making sure you have the right policy. LemonBrew Insurance can help you find the best homeowner’s policy to protect your assets and keep you on budget. Even if you already know the answer to the question “is homeowners insurance tax deductible?” we can still help you evaluate your current financial standing and assess which deductibles are applicable for you. Explore our solutions today and start saving money on the cost of homeownership.