Editor’s note: Forbes may earn a commission on sales made through affiliate links on this page. However, this does not affect the opinions or ratings of our editors.
Getty
With tax season approaching, many taxpayers look for tax deductions that can minimize their tax liability. Unfortunately, this usually doesn’t include your home insurance premium payments.
However, there are a few circumstances in which your home insurance premium payments qualify for a tax break.
Rental property deduction
When you rent out your home, you can qualify for a rental home allowance that includes home insurance premiums.
For example, suppose you are a snowbird and spend half of the year in New York and half of the year in Florida. If you rent out your Florida property for six months a year while in New York, you may be able to deduct 50% of home insurance premiums for your Florida home.
Home insurance premiums are not tax deductible for a primary home.
Home business deduction
Do you run a home based business? If so, you can qualify for a home office deduction that allows you to deduct a portion of home expenses like mortgage interest, utilities, and insurance (like home, tenant, and condominium insurance). According to the IRS, a “home” includes a house, apartment, condominium, mobile home, boat or similar property.
- To qualify for this deduction, the IRS states that all business owners must meet two requirements:
- Part of your home must be used regularly and exclusively for business purposes. For example, if you use an additional room as a home office, you can make a home office deduction for this room.
Your home is the main location for your business activities.
You may still be eligible for a private business allowance if you do business outside of your company, such as when doing business outside of your company. B. Meetings with customers. However, the IRS states that you must use your home “essentially and regularly for business purposes”.
The amount you can deduct depends on the portion of the home that is used for business operations and the method by which your deduction is calculated (regular and simplified options).
For example, using the regular method, a freelance web designer using 160 square feet of a 1,600 square foot home could deduct 10% of home office expenses, including home insurance premiums.
The simplified option allows taxpayers to deduct $ 5 for every square foot used. In the example above, a self-employed web designer could deduct up to $ 800 (160 square feet x $ 5) from home office expenses, including home insurance premiums.
Note that this deduction applies only to certain eligible taxpayers who are self-employed, freelance, independent and in the gig economy. Taxpayers who work for an employer are not entitled to this allowance. For example, if your employer lets you work from home during the pandemic, you are not entitled to any tax deduction.
Disaster or theft deductions
Theft losses and damage from disasters such as earthquakes, fires, floods, hurricanes, and volcanic eruptions may be eligible for a loss, catastrophe, and theft loss deduction. In general, the US president has to declare a disaster for losses to be tax deductible.
“If the call was for a rogue fire in the neighborhood – not a disaster area like the California wildfires – you most likely won’t get a deduction,” said Mark Steber, chief tax information officer at Jackson Hewitt.
Generally, if your home insurance claims are tax deductible, you can deduct the difference between your insurance proceeds and the total cost of the claim, e.g. B. Your deductible or costs that have exceeded your home insurance limit.
For example, if a federally declared disaster totalized your home like wildfire and your home policy limits were insufficient, you may be able to deduct the amount you spend out of pocket on repairs in the following tax year.
Seek professional advice
Tax law and home insurance deductions can be complicated, and it’s a good idea to seek advice from a tax advisor to understand what deductions might apply to you.
“With the combination of tax law, pandemic and lifestyle changes from 2020 onwards, taxpayers can easily overlook some of the tax benefits available. As a best practice, it is advisable to use a tax advisor to ensure that you are maximizing your deductions, ”says Steber of Jackson Hewitt.