Is Hazard Insurance Tax-Deductible? What You Need to Know

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Clever Real Estate

Updated 

March 15th, 2019

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Your lender likely requires you to carry hazard insurance on the physical structure of your home as part of the terms of your mortgage. Since these premiums can really add up, you may be wondering if the money you pay your insurance provider is tax-deductible. The short answer is no, but there are a few exceptions.

When you purchase a home using a mortgage, it is likely your lender will require you to have hazard insurance on the property. Hazard insurance is the portion of a homeowner’s insurance policy that covers the physical structure of your home. Lenders require you to have this type of insurance because they want to protect their investment in the event of a fire or disaster that may destroy the home.

Since you’re required to purchase this coverage, you may be wondering if you can deduct the premiums when filing your taxes for the year. The short answer is no, but there are some exceptions.

Rental Properties

When using a property as a rental, all expenses – including hazard insurance premiums – are deductible on Schedule E of your tax form. Since the IRS treats rental property as supplemental income, your hazard insurance counts as a cost of doing business. This means your premiums can be deducted, along with other types of insurance you may wish to have for your business, like liability or personal property insurance.

Home Business Office

Similar to rental properties, the IRS allows you to deduct expenses if you run a business out of your home through a home office. Check with your accountant for details related to your specific business, but generally, a portion of expenses you pay for your personal residence can be deducted as a home office expense. For example, if 10% of your home is used for a home office (and solely for a home office), you can deduct 10% of your yearly hazard insurance premiums. The same may apply to your internet bill, phone bill, etc.

A Disaster Situation

While this situation won’t come up often and is hopefully something you won’t ever have to deal, some losses in federally-declared disaster areas are deductible. For example, if you file a claim on your hazard insurance and your insurance company only pays a portion of the amount, you can deduct the remaining amount minus $500 per incident.

Other Mortgage-Related Insurance

Aside from hazard insurance and other forms of homeowner’s insurance, if you’re paying less than 20% on your down payment, your mortgage lender will likely require you to pay for private mortgage insurance (PMI). This type of insurance protects the lender in the event that the borrower stops paying their loan and premiums are usually wrapped into your monthly mortgage. Unlike hazard insurance, PMI can be taken as a deduction on your primary residence.

Since insurance needs can vary greatly based on your situation, it’s best to consult an expert to make sure you have the correct coverage and in the correct amount. If you’re evaluating insurance options, connect with an experienced Clever Partner Agent as a good first step, plus you’ll get up to 1% of the price of your home rebated at closing. Partner Agents can provide guidance on how homeowner’s or hazard insurance works; how much and what type of coverage is necessary for different kinds of properties; and set expectations in terms of costs so you’re not paying for more than you need. They can also connect buyers with good carriers and local agents or agencies.

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