Is Hazard Insurance Deductible on Taxes?
One question homeowners often ask is whether hazard insurance is deductible on taxes. Another common question is sparked by the name itself — hazard insurance. Is hazard insurance the same as homeowners insurance?
Whether you own your home, use part of it for business, or rent it out, this post will help clarify if and when you can claim hazard insurance deductions. We’ll also simplify the terminology and show you a list of events that your homeowners insurance may not actually cover.
Editor’s note: This post is for educational purposes, not tax advice. If you need assistance navigating tax deductions, HomeLight encourages you to contact your own advisor.
What is hazard insurance?
The phrase “hazard insurance,” typically refers to the portion of your homeowners policy that covers your house from physical damage caused by perils such as fire, hail, windstorms, and even crimes like vandalism or theft. Most policies have named “covered” perils, and exclude perils caused by major natural disasters such as flooding and earthquakes. (More on this later in our post.)
It’s helpful to note that hazard insurance is usually not a separate, stand-alone policy for most homeowners. This focused phrase is sometimes used by mortgage lenders when referring to insurance that protects the physical structure of a house rather than that portion of your policy that applies to liability losses, injury claims, or damage to your personal property.
Hazard insurance helps ensure that if a covered event damages your property, you won’t bear the entire cost of repairs or rebuilding.
Is hazard insurance deductible on taxes?
The deductibility of hazard insurance on your taxes depends on how you use the property. Here’s a breakdown of common scenarios:
The home is your primary residence
In general, homeowners or hazard insurance premiums for your primary residence are not deductible on your tax return. The Internal Revenue Service (IRS) treats hazard insurance as a personal expense unless other factors are at play, which we’ll describe below.
Part of your home is used for your business
If you operate a business out of your home, a portion of your hazard insurance premium may be deductible. You can deduct the percentage of your home’s square footage dedicated to business use.
For example, if 10% of your home is used exclusively for your business, you might be able to deduct 10% of your hazard insurance premium. You’ll want to keep detailed records to accurately reflect the business portion of your property. IRS Form 8829 can help you determine the allowable expenses for business use of your home on Schedule C (Form 1040).
The home is a rental income property
Hazard insurance premiums for rental properties are typically considered business expenses and are generally deductible on your tax return. The same deduction allowance generally holds true for other expenses related to a rental home, such as the costs to advertise, maintain, or repair the property. Your insurance premium deductions can be claimed on IRS form Schedule E, Supplemental Income and Loss (insurance line 9 of part 1).
Keep all receipts and documentation related to your rental property, including hazard insurance policies and payments.
Your home was impacted by a federally declared disaster
If your primary residence suffers casualty and theft losses during a federally declared disaster, you may be able to deduct the amount of a denied or partially covered insurance claim (out-of-pocket expenses). Some events that may qualify for this deduction include earthquakes, floods, and wildfires.
In this scenario, you will need to file an IRS Schedule A (Form 1040), Itemized Deductions to deduct qualified damages on your taxes.
If you are facing any of these situations, it’s best to consult a tax professional to determine eligibility.
