Is home insurance tax deductible?

Whenever you buy any product for the home, always ask if it tax deductible. Include in your quest for deductions anything that is a standing expense.

Yes, that means that you need to consider whether the costs of homeowners insurance falls under deductions too.

First of all, deductions are often confused with tax credits.

According to the Internal Revenue Service, tax deductions are subtracted from your income before calculating taxes you owe.

The heft of a deduction is often contingent upon your own tax bracket. On the other hand, tax credits are useful after calculating your tax bill, because they come out after tax.

Use the two hand-in-hand to help your family out the most.

Deductions may help lower you to a tax bracket that carries a lower tax burden, depending upon your situation.

Credits help defray the cost of your remaining tax bill. The short answer is that no, homeowners insurance is not tax deductible.

The reason is the specific rules that govern IRS parameters for deduction of homeowners insurance.

For that reason, it is advisable to talk to your homeowners insurance agent, your accountant or tax preparer, and read about the process here.

The handful of qualifying reasons you are able to deduct your homeowners insurance is if you rent out your home or use part of your house as a home office for a business.

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Learning About Deductions

For instance, having insurance for your home office is necessary, and is a deduction on your business taxes. The caveat is that the business must be legitimate entity, such as an s-corp, limited liability corporation, or for your employer.

The proper way to make the deduction is by what percentage your home office accounts for your home’s size.

For instance, your home office could be 30 percent of your condominium’s size. That is how much you deduct off your business taxes for homeowners insurance.

The other time that homeowners insurance is deductible is for renting out a room in your house. Again, either divide up your house based upon a percentage of the entire square footage, or by expenses.

However, if you are going to rent out portions of your home, make sure you talk to your insurance agent. Note, if you rent out whole buildings, you need to buy landlord insurance instead of homeowners coverage.

Aspects of Homeowners Insurance

In addition to grabbing the deductions, take the time to learn about homeowners insurance. Basically, homeowners insurance is a four-pronged product, covering:

1. Dwelling
2. Structures
3. Personal Possessions
4. Liability

The dwelling aspect of coverage is probably the most vital, as this portion of your policy will pay to rebuild your home if it is destroyed or damaged in insured events.

Always read your policy because such events are specifically listed out there. They include fire and windstorm, just to name two. If you live in hurricane prone areas, make sure that you have the proper coverage for high winds that occur in hurricanes. In addition, buy earthquake insurance separately.

Easy enough, right? Well, just make sure that when you are buying coverage you make the limits in accordance with how much it would cost to rebuild your home, not according to real estate market values.

Needing to Rebuild

There are two professionals you need to talk when determining the price to rebuild. They are a contractor and also a home appraiser. Together they will make an estimate for you that fairly demonstrates the costs to rebuild your house.

Taking the time to make such an effort may save you on insurance costs at best. At the least, it gives you peace of mind in knowing how much insurance to purchase.

When you do determine dwelling limits, be sure to pick up the kind with an inflation guard.

Inflation guard ensures that insurance limits keep pace with spikes in construction labor and material costs following a disaster, for instance.

Personal possessions are usually covered up to a percentage of the dwelling coverage limits. It is a good idea to take an inventory of all of your belongings in your house.

Take photos, video, keep receipts, and take down serial numbers. This list will make it known to insurance claims adjusters what items you actually owned if you need to make a claim. Keep copies with you and also offsite.

Beyond making it easier to file a claim, creating an inventory of your belongings for your insurance helps you in another manner. It makes determining how much coverage you need apparent.

You may need to purchase riders for special items. Ask your insurance agent, and always read the proposed policy details too.

Dwelling coverage only covers the house and attached garage. That means decking, playgrounds, and even fencing is not included. Those extra pieces are covered under structures. It is entirely up to you how much coverage you need for the other structures on your property.

Every home is unique and requires the homeowners’ personal evaluation of needs. That is part of your responsibility, although it is not a fun aspect of home ownership.

Liability is the final aspect of insurance. It covers the homeowners if anyone is hurt on their property.

Dog bites are the most common reason for liability claims. Mold is another huge reason for homeowners to file claims.

Preventing Claims

Be sure to demonstrate that you are doing all you can to prevent insurance claims. For instance, maintain your house to catch leaks before any mold forms.

Likewise, be sure to have your dog trained and keep him or her away from guests if they are unpredictable or violent.

Depending upon whether you have a business in your home or are renting space, you may take a tax deduction for your home insurance.

In both instances, you can make the deduction follow the percentage of your home that is not in your personal use.

If you are residing in your house, you are unable to take the tax deduction for your insurance.

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