Is Homeowners Insurance Tax Deductible For Rental Property?
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Achieving financial stability is one of the reasons why more and more people choose to invest in rental properties. As long as you find responsible tenants — those who pay rent in full and on time and don’t cause any damages to your property — your rental property can become your ticket to earn passive income every month.
However, as a rental property owner, you should also be aware of which expenses you can deduct once you file your income tax return. This will enable you to manage your finances properly and ensure that you can get the most out of your tax return.
One of the expenses you’ll incur when you have a rental property is homeowner insurance. If you want to maximize your rental property and ensure that it’ll last for decades, it’s vital that your homeowner insurance has adequate coverage, especially in case of a loss.
Homeowners Insurance Vs. Landlord Insurance
As a landlord, having insurance coverage is necessary. This coverage can protect the structure of your rental home and save you from paying medical expenses if someone is injured on your rental property. The insurance you’ll get can also help protect you from loss of income, allowing you to make the most profits from your rental property.
Homeowner insurance policies are helpful for individuals who live in their own homes as their main residences, but not enough for individuals who choose to rent out their properties to tenants. Since you belong to the latter, you’ll have to buy landlord insurance to protect your rental property against losses such as theft, vandalism, fire, and smoke.
In its simplest sense, landlord insurance is different from the standard homeowner insurance. Landlord insurance is more expensive than homeowner insurance because the property being protected is treated as a business entity instead of a place of residence.
Depending on your needs, you can also get a landlord policy that includes a liability portion. With this coverage, you’ll be protected from being personally liable for paying legal fees and damages from a claim if someone is injured on your property. Although a liability portion can cause your premiums to increase, having one will save you a lot of stress and money the moment someone is injured in your rental property.
Most landlord insurance can also give you income protection from loss. For example, if your rental property is severely damaged because of a storm or flood, and your tenant has to move out as renovations are being made, your insurer will compensate for your loss of rental income.
How Homeowners Insurance Can Be Tax-Deductible
The homeowners insurance premiums are generally not tax-deductible. However, in special cases, if you’re a landlord, your homeowners insurance might be wholly or partially tax-deductible.
There are two special instances in which you can deduct insurance premiums from your home, namely:
If you use your home for business: If you have been using your entire home or part of it for business, a certain amount can be tax-deductible from your homeowners insurance. To determine this amount, take the square footage of your qualified home space (the space you’re using for business) as a percentage of the total home square footage. You can apply that percentage to your premium, and the resulting figure will be deducted as a business expense.If you receive rental income from your home and you’re a landlord: The property of your property used as rental becomes tax-deductible from your homeowners insurance. If you own many properties, and all of these properties are solely used to generate rental income, then all of the homeowners insurance is deemed tax-deductible.
In short, you can only deduct homeowner’s insurance premiums that are paid on rental properties and not on your main home.
How To Deduct Homeowners Insurance
For you to deduct homeowners insurance, you need to fill out Schedule E, or the Supplemental Income And Loss Form, during the tax season. Once you’ve completed the form, you need to provide information or details regarding the amount of rent you’ve collected and whether you’ve used the property personally anytime during the year. These details are vital to determine your qualification for tax deductibles.
Once done, fill in the amount you paid for the insurance of your rental property. There will be space in the form asking about this information. Add this detail to your other expenses, and the total becomes your deductible from your rental income for the year.
You can use this amount in calculating whether you have an overall profit or loss on your Schedule E form.
Other Deductions on Rental Properties
Landlords are privileged enough to take advantage of many tax deductions, but only a very few understand what these deductions are. If you’re still a new landlord, take note of the information in this section, so you’ll know the other deductions on rental properties.
Tax-Deductible ExpenseWhat Is It?RepairsOnce you become a landlord, the cost of repairs on your rental property is fully deductible in the same year that they were incurred. As long as these repairs are necessary and reasonably priced, you can deduct the cost from your taxable income return. Some examples of deductible repairs are fixing floors or gutters, fixing leaks, replacing broken windows, and repainting interiors or exteriors. TravelYou are entitled to a tax deduction for the expenses you’ve spent traveling to and from your rental property. Instances of this are when you drive to your rental property because you’ll have to serve the lease agreement to a tenant, or when you have to the hardware store ASAP because you need to repair leaks in your rental property. Legal and Professional ServicesThe amount you’ll pay to accountants, attorneys, and property management companies is also deductible. These fees are tagged as operating expenses and are deductible from your taxable income return as long as these are related to your rental activities. Common Tax Deduction For Landlords
Knowledge is Power
If you want to succeed as a landlord, you need to educate yourself on the expenses that are tax-deductible. Not knowing which expenses are tax-deductible can lead you to spend more money out of your pocket. Make sure that this doesn’t happen by using this article as your reference.
