Can I Claim Required Flood Insurance on Income Taxes?
Flood insurance premiums are deductible only if a property earns income.
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Even if you are required to buy flood insurance coverage to get a mortgage loan, the premiums you pay are not a deductible expense on your federal income tax return. Although you may have an escrow account from which funds are taken to pay the flood insurance premiums when they come due, payments for insurance coverage are nondeductible, according to Internal Revenue Service guidelines. Still, you may qualify to get a tax break in other ways.
Home Office Deduction
Insurance premiums are indirect home office expenses you can write off. If you regularly use part of your home as your principal place of business, you can deduct a portion of certain expenses -- such as insurance premiums -- that are not normally deductible. To figure what percentage of your house you use as a home office, divide the total area -- in square feet -- of your house by the size of the area you use for work. If the space you use for your home office accounts for 15 percent of your home, you can deduct 15 percent of the flood insurance premiums you pay as a business expense. The home office expenses you claim can’t be more than the income you earn from your business.
Rental Expenses
The IRS allows you to claim the premiums you pay for flood insurance on a rental property as a deductible rental expense. Under IRS rules, you can deduct the expenses related to renting property from your gross rental income. Usually, you deduct expenses in the year you pay them. Similar to deducting home office expenses, if you rent out only part of the property and use the remainder for yourself, you can claim the applicable portion of the flood insurance premiums you pay as rental expenses on your tax return.
Casualty Losses
Even though you can’t itemize the flood insurance premiums you pay, if you are the victim of a flood that the president declares a major disaster, you can claim a casualty loss on your federal tax return. To calculate the amount of the deduction you are allowed, subtract $100 from the total amount of your loss. The amount remaining must exceed 10 percent of your adjusted gross income. In addition, you must deduct any amounts your homeowners and flood insurance policies paid toward the damages to your home and personal property.
What Forms to Use
If you have a home-based business and want to deduct the allowable portion of your flood insurance premiums as a business expense, calculate your deduction on Form 8829 -- Expenses for Business Use of Your Home. Report your home office deduction on Form 1040, Schedule C -- Profit or Loss from Business. Enter insurance premiums you pay on a rental property on Schedule E -- Supplemental Income and Loss. After calculating your total real estate income or loss, enter the amount on Form 1040. When claiming casualty losses, report your loss on Form 4684 and on Schedule A of Form 1040. Like your other itemized deductions, the deduction for your casualty loss will reduce your taxable income.
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Writer Bio
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.