Home Insurance and Tax Season

Owning a home translates into some pretty sweet federal income tax breaks – deducting mortgage interest makes a huge difference for most people. So home insurance should make for some great deductions, too, right? While you'd certainly think so, that's not the case. But there can be some tax benefits if you look hard enough – and if you qualify.

Check out the following situations and see if you fit into one of them. Then talk to an accountant or other tax professional to make sure the situation applies to you. (We're going to repeat that last piece of advice several times in this post.) You can't be too careful when it comes to tax season!

The Big takeaway, again

Once again, for most people, home insurance premiums are NOT tax deductible. We want to be clear on that. That said, let's turn to your monthly mortgage statement, which generally covers the home loan's principal, interest, taxes (the property variety), and insurance.

First off, make sure you get the full benefit of the mortgage interest deduction – it applies on mortgages with balances of up to $1 million. How do you know how much interest you paid during 2014? Your mortgage company should have mailed you a document, Form 1098, detailing how much you paid in principal and interest over the year. (And no, you can't deduct the principal that you've paid, either.)

However, you usually can deduct real estate taxes on your home and the land it sits on. The local taxing authority should have sent you another Form 1098 – check out Box 4 on it for the details on how much you paid.

In addition to home insurance premiums, title insurance premiums are not deductible. If you were required to purchase private mortgage insurance, however, those premiums are deductible. (Lenders generally require private mortgage insurance if you didn't make a down payment of at least 20% of the purchase price of your home.) Dig out that Form 1098 from your lender – the amount should show up there.

The exception to the home insurance rule

Do you have a home office? Do you use it only for business? If so – and if you can meet other stringent Internal Revenue Service requirements for home offices – you can deduct a percentage of your home insurance premium.

Here's how it works: Calculate the percentage of your home's square footage that is dedicated to your home office. For example, if you own a 2,000-square-foot home and your home office is 150 square feet, then your home office accounts for 7.5% of your home. You could deduct 7.5% of your home insurance premium (as well as a percentage of other costs associated with the home office).

Again, do not take this deduction if you're not positive you're entitled to it.

If you filed a claim ...

OK, there's one more scenario under which you could receive some tax benefits from your homeowners insurance. If you filed a claim on your policy, you may be able to deduct certain expenses:

• Theft or casualty loss deduction: If you suffered a loss due to theft or a covered peril such as fire or wind but were not fully reimbursed for the damage, you may be able to deduct the amount that wasn't reimbursed. There are some restrictions on this, so be sure to check with a tax professional before you take this deduction.
•            The deductible deduction: No, we didn't double type a word there. In some cases – again there are some pretty technical restrictions on this – you can deduct your deductible. That's the amount you agree to pay out-of-pocket when you file a claim.

A final word of caution: Check with your tax preparer or accountant before you take any of these deductions. It's too easy to make a mistake, and the consequences can be serious.

HomeInsurance.com is an online resource for homeowners and drivers across the country. Offering comparative automobile and home insurance quotes, consumers rely on HomeInsurance.com for the most competitive rates from the top-rated insurance carriers in the country. The HomeInsurance.com blog provides fresh tips and advice on a range of financial topics to help homeowners and homebuyers make educated decisions about their insurance purchases.