Can I Deduct Homeowner Insurance on a Rental House?

Owning rental property opens the door to passive income on a monthly basis. But even if you earn a livable income from your rental house, there are costs associated with managing a property. These costs can reduce your monthly profit. However, you can deduct many rental expenses from your yearly income and recoup some of your investment.

What Is Homeowners Insurance?

This type of insurance policy protects your property and its contents in the event of an unforeseen occurrence, such as a burglary, a fire or a natural disaster. Policies also include personal liability to protect against accidents or injury that may occur on your property. Homeowners insurance is absolutely necessary and mortgage lenders will not close on your mortgage loan until you've acquired a policy. Policies are required for owner-occupied properties, as well as rental properties.

Can You Deduct Homeowners Insurance?

Owning real estate opens the door to a variety of tax deductions. For example, you can write off your mortgage interest, property taxes and any energy-efficient home improvement. But if you attempt to write off your homeowners insurance premiums, this can trigger problems with the Internal Revenue Service. Although the IRS allows property owners to deduct their home insurance premiums, this deduction is available only for business purposes. Being a landlord and renting homes is a business. As a business owner, you can deduct homeowners insurance on a rental house as a business expense. You can also deduct premiums paid toward supplementary insurance, such as flood insurance and earthquake insurance.

Benefits of a Deduction

Managing a rental house involves other costs, such as maintenance and repairs. These are also deductible expenses. You aren't required to deduct expenses on your tax return. However, the ability to write off certain expenses reduces your taxable income. Reducing your taxable income is one way to reduce your tax liability, or the amount that you owe the IRS. Rather than pay taxes on your total rental income, you pay taxes only on your income after write-offs. For example, if your rental income is $20,000, but write-offs reduce your taxable income by $8,000, you pay taxes only on $12,000.

How to Take Your Deduction

Deducting homeowners insurance on a rental house requires itemizing your tax return. Itemizing refers to listing individual items or expenses on the appropriate form. In the case of rental income, you need the IRS form Schedule E (Rental Income and Expenses). Calculate your total rental income for the year and give this figure to your accountant. Compile a list of expenses associated with the rental house, including your home insurance premiums, and give this information to your accountant. He enters your total rental income on the appropriate line and then deducts any expenses from this figure to calculate your taxable rental income.

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About the Author

Valencia Higuera is a freelance writer from Chesapeake, Virginia. She has contributed content to print publications and online publications such as, AOL Travel, and ABC Loan Guide. Higuera primarily works as a personal finance, travel and medical writer. She holds a Bachelor of Arts degree in English/journalism from Old Dominion University.

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