Is Home Insurance Tax Deductible?

Owning a home comes with its own set of expenses, from mortgage payments to home repairs. Homeowners insurance is one of the expenses you’ll pay as a homeowner. Homeowners insurance is typically not tax deductible.

On the other hand, homeowners do enjoy other tax deductions. You can claim these deductions if you itemize your tax return each year. We’ve compiled what you need to know to help you save on your tax bill.

In general, homeowners insurance premiums are not tax deductible. If you use your home as a home – without deriving any income from it – your expenses, including insurance premiums, are not deductible. You may be able to deduct a portion of your premiums if you rent out part of your home through Airbnb or another home-sharing app, or if you run a business from your home. Speak to a tax professional to determine how much you can deduct.

If you own a property strictly for investment purposes, you will be able to deduct the entire amount of your premiums as a business expense.

Keep in mind that private mortgage insurance is different from homeowners insurance and can be deducted from your taxes. This type of insurance protects you from defaulting on your home loan.

Here are the nine main tax deductions you should know about as a homeowner.

1. Mortgage Points Deduction

Your mortgage may be the largest debt you’ll ever tackle. Consider purchasing mortgage points. These can be a great way to not only save money over the duration of your mortgage but also to write off some of the interest paid on your loan.

What Are Mortgage Points?

Mortgage points are often referred to as discount points and are bought upfront, at the time you close on your mortgage.

One point is equal to 1% of your total mortgage amount. For example, let’s say your home is $200,000 and you want to put down an additional $2,000 at closing. In this case, you’d purchase one mortgage point. The purpose of mortgage points is to reduce your interest rate over the lifetime of your loan. Your interest rate decreases for each mortgage point you purchase.

How Do Tax Deductions Work For Mortgage Points?

You can typically claim the full amount on your taxes the same year you buy mortgage points. There are some stipulations you must meet to qualify, but most U.S. homeowners meet these standards. If your home loan amount is over $750,000, you’ll be limited to a specific amount you can claim on your taxes.

Use Form 1098 (provided by your mortgage lender) to claim the deduction and find the total number of mortgage points purchased. You’ll put this amount on line 10 of Form 1040 Schedule A. Your accountant or tax software can walk you through this step.

2. Mortgage Interest Deduction

You can also put a little money back into your own pocket with a type of tax break called a mortgage interest deduction. This deduction allows you to claim the total amount paid toward your mortgage interest within one year.

Homeowners can deduct the interest paid on the first $750,000 of qualified personal residence debt on a primary or second home.

You can find the amount of mortgage interest paid per year on Form 1098 from your mortgage lender. You’ll report this amount on Schedule A of the 1040 form.

3. Property Tax Deduction

Homeownership also requires you to pay property taxes. What you’ll pay in property taxes ranges depending on the state and county you live in as well as the overall value of your home. This covers things like road and highway construction, education and more. You can deduct the property tax payments you make each year if you itemize your tax return.

Let’s say you’re married and filing jointly. You can deduct up to $10,000 in property taxes per year when filing your taxes. On the other hand, if you’re single or filing separately, you can deduct up to $5,000 in property taxes. You’ll claim this deduction using Schedule A of the 1040 tax form.

4. Rental Deductions

Did you know you’re eligible for a rental deduction if you rent out a part of your home, such as a garage apartment, basement or spare bedroom? You’ll need to pay taxes on any rental income, but you can recoup some money by deducting maintenance and repair costs, insurance, utilities and other rental expenses.

Simply fill out Schedule E of the 1040 form and subtract any expenses from your rental property income. Be sure to check with a tax professional to ensure you maximize this deduction.

5. Home Office Deductions

In some cases, you may be able to deduct business expenses from your taxes, particularly if you’re a self-employed homeowner. You must be self-employed – not just a remote employee – and meet all of the IRS’s stringent requirements to take advantage of this deduction, such as the requirement of the space being used exclusively for work.

The IRS allows homeowners with a qualifying home office to calculate the amount they’re able to deduct from their taxes in one of two ways. The first method involves calculating the actual expenses you spend operating your business from home. This could include maintenance, utilities, internet and other expenses. You’ll need to keep your receipts to back up your claims.

The second method is a simplified estimate that allows you to deduct $5 per square footage of office space. So, if your work area is a 10x20 space, or 200 square feet, you’d qualify for a $1,000 deduction.

6. Home Improvement Deductions

Home improvement products can add tremendous value to your home both by improving your space and increasing your home’s worth. Another upside to home improvement projects is that many of them qualify for tax deductions.

Home improvements that improve your home’s value are called capital improvements. Types of qualified improvements include swimming pools, home additions, garages, a new roof, a new central air conditioning system, water heater upgrades, home security systems and more.

As a homeowner, you can’t deduct these expenses. But the value of any capital improvements you make to the home is added to your cost basis in the home which in turn affects whether, and how much, you’ll pay in capital gains taxes when you sell the property. It’s important to keep records of all major home improvements for this reason. A qualified accountant or tax specialist can help you work through all improvements to determine which ones are eligible for this tax treatment.

7. Energy-Efficiency Deductions

Transforming your home into an energy-efficient property can help you save money on your utility bills and taxes.

The Residential Renewable Energy tax credit allows you to claim credits when you implement solar, wind, geothermal or fuel-cell systems. Energy-efficient upgrades that qualify for this tax credit include solar-powered water heaters, solar panels, wind turbines and geothermal heat pumps. The Inflation Reduction Act of 2022 offers substantial new incentives that encourage homeowners to switch to renewable energy sources.

8. Deductions For Accessibility Improvements

If you make home improvements to improve your home’s accessibility for members of your household with disabilities, you may qualify for additional tax deductions. IRS Publication 502, Medical and Dental Expenses, in the section Capital Expenses, provides guidance on what types of improvements are deductible. You can deduct the expenses you incurred to make your home accessible, minus any home appreciation you may have enjoyed due to the improvement.

For business owners, the Americans with Disabilities Act (ADA) has compiled a fact sheet of available tax incentives for improving accessibility to your place of business.

9. Capital Gains Tax Exclusion

You might wonder if you’ll be responsible for paying capital gains tax when you sell your home. The good news is that when you decide to sell, you most likely won’t have to pay a cent of capital gains tax.

Thanks to the Taxpayer Relief Act of 1997, you may be exempt from paying capital gains as long as you meet the qualification criteria. You’ll need to have lived in and owned the home for 2 of the past 5 years and not have used this tax break within the last 2 years. You’re exempt from paying capital gains tax on home profits up to $500,000 if you file taxes jointly. You’re also exempt from paying this tax on home profits up to $250,000 if you’re an individual filer.

Many homeowners have found themselves skipping the record-keeping requirements and legal complexities of itemizing their deductions and simply taking the standard deduction. For the 2023 tax year, the standard deductions are:

Unfortunately, homeowners insurance premiums aren’t tax deductible, unless the property creates a source of income. The good news is that the increase in the standard deductions makes itemized deductions a thing of the past for most homeowners.

Want to learn more about the tax benefits of owning a home? Our Learning Center is here to help.