As we move into December, most people are thinking of the Christmas season. They’re decorating their homes, going to parties, and finding gifts for loved ones. It’s a beautiful time of year!
Unfortunately, once the Christmas season wraps up, a less fun financial season looms on the horizon. You guessed it; we’re talking about tax season.
As tax payments approach their due dates, many people struggle with understanding taxes and what they owe. They also try to find deductible payments to make the season more financially bearable.
To that end, many people wonder if their homeowner’s insurance is a tax-deductible cost. If you’re wondering about that, you’ve come to the right place! In this guide, we’ll give you the information you need about homeowner’s insurance and filing taxes.
Understanding Taxes: Homeowner’s Insurance
Generally, homeowner’s insurance does not qualify as a tax-deductible expense. Your premiums don’t qualify as a deductible when doing taxes, either. Sometimes this confuses people since their mortgages may include premiums.
Why don’t these expenses count? The simple reason is that the IRS considers them to be nondeductible. Unfortunately, this means that homeowners can’t itemize home insurance payments on their tax returns.
However, there are a few ways that you can make your insurance into a tax-deductible expense. We’ll discuss how in the following two sections.
Coverage Policy for Small Business Owners
There are exceptions to the rule explained above. The most prominent example is if you run a small business on your property.
For instance, you may have a lawn care business or run a freelance LLC from your home. In cases like these, the best homeowners insurance policies may cover a few thousand dollars for this.
A standard homeowner’s policy usually won’t cover a larger business, though. You’ll have to look at other coverage options instead.
If you do run a small business from your home, measure the square footage of your workspace. When you do, gauge it as a percentage of the total household square footage. You can apply this percent to your premium and subtract the resulting figure as a business expense.
The other way you can make your homeowner’s insurance tax deductible is if you’re a landlord. You may wonder how this works.
Let’s say you rent out your basement to a tenant. If so, you can use the homeowner’s insurance on that portion of your home as a tax-deductible expense.
If you own several properties and use those properties solely for rental income, you can include all of the homeowner’s insurance as a deductible expense.
Is Homeowner’s Insurance Still Worth It?
If you don’t qualify for these two deductible methods, you can’t itemize your insurance when doing taxes. So, is homeowner’s insurance still worthwhile?
The answer is, absolutely! Homeowner’s insurance can protect you from several contingencies. If you take out a mortgage, most policies make you take out insurance.
If you want to deduct expenses from your final taxes, keep exploring! As you grow in understanding taxes, you’ll find several other deductible costs.
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