This month is tax time – an annual ritual in which taxpayers search for every possible savings to help reduce their taxes, including deductions for eligible expenses. Is homeowners insurance one of these?
Although many people believe it is, the short answer is no. However, some exceptions do exist and partial deductions may be possible.
Rentals: Rental homes are the most common exception. You may deduct all of the property insurance for homes used exclusively as rental properties. If you rent out part of your home and report the rental income, you can deduct your property insurance as a business expense on the portion of the home you rent out.
Business: Do you use part of your home for business? You may be eligible to deduct some of your homeowners insurance, based on how much of the home is devoted to business use. This can be tricky, so it’s best to leave calculations to an accountant.
Loss: If you made a claim for theft or other damage on your homeowners insurance policy during the current tax year, you may be able to make a partial deduction. If your insurance was not sufficient to cover losses, you may be eligible to deduct the difference between actual cost and your settlement.
Itemizing: You must itemize on your tax return to take advantage of any of these insurance deductions. But itemizing may make you ineligible for other types of deductions. Consult with a tax expert to decide which approach to take so that you will gain maximum benefit.
Check with your insurance agent to verify what out-of-pocket insurance deductibles, premiums, or other insurance costs you have incurred over the year to see if you’re eligible for deductions.
It’s also beneficial to have a professional prepare your return or check it, cost notwithstanding. The good news? Next year, you can write off the cost of hiring the tax preparer.