Don’t Forget Your Home Insurance on Tax Day

iStock_000005855720XSmallAs April 15 is nearly upon us, you are likely thinking about your taxes more than anything else. Of course, those of you who have already filed your taxes can smile smugly and wonder why there are procrastinators out there! However, when you were preparing your taxes, did you consider that your home insurance may have some interaction with how much you pay or may be able to deduct? Believe it or not, insurance figures into many aspects of your financial life and income tax is no different.

If you have your home insurance premiums impounded by your mortgage company, you’ll need to make sure that you aren’t deducting them on your taxes. While the mortgage interest may be deductible depending on your individual situation, the premium for home insurance is not deductible. This confuses people sometimes because they pay the whole thing to their mortgage company. In fact, it’s even further complicated by the fact that the real estate taxes are also impounded along with the mortgage payment and those are often deductible. It’s important to understand that there are various components to what you pay in your mortgage statement each month and not all of those components are deductible.

One area related to your home insurance that may be deductible is if you have losses which are not insured. Because your home insurance covers you for losses or damages that you suffer, your income tax return can be potentially affected if you are not insured. By not insured, it doesn’t necessarily mean that you have no insurance at all. It can also apply when you have insufficient insurance to fully reimburse you for a loss you have incurred. This particular deduction can be very helpful to homeowners who lose their home in disasters such as floods or earthquakes and don’t have insurance to cover repairs. Of course, relying on a tax deduction is not a good substitute for having proper insurance in the first place. The two are not exactly the same thing so don’t even think about tax deductions in lieu of actual insurance policies.

While you are contemplating the possible tax deductions, you should be aware of losses that otherwise would not be insurable are also not deductible. This means damage to your home as a result of your neglect, which the home insurance policy excludes, will not be deductible. Just as it’s not really a good idea to count on a tax deduction instead of home insurance, you definitely can’t expect any benefit from a tax deduction when you don’t maintain your own home. The usual exclusions such as neglect, wear and tear, lack of maintenance, or vermin infestation are also going to bar you from any tax deduction for loss. Uninsured losses are supposed to be those that are sudden and accidental, and vermin infestation, as an example, is neither sudden nor accidental!

Another thing to keep in mind with tax deductions for uninsured losses is the limitation on how much actually is deductible. As with many other items that are potentially tax deductible, the IRS sets thresholds that you must overcome before you can actually deduct them. This has to do with your adjusted gross income and the value of the loss.

As you can see, it’s a bit complicated in terms of what you can or cannot deduct relative to home insurance and related expenses. The best place for information is either from a tax professional or the IRS directly. In either event, don’t forget about the potential deductions related to your home insurance.


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