• Homeowners insurance might be tax deductible for those who are self-employed and work out of home offices.
• It’s important to only claim a home office you use exclusively and regularly for business purposes.
• People who work from home for a company and receive a W-2 generally don’t qualify for the deduction.

As a homeowner, you are likely aware that you can reduce your taxable income by deducting your mortgage interest and property taxes. But have you ever wondered if you can also deduct other home expenses like your homeowners insurance premiums? While not deductible to most taxpayers, those who are self-employed and work from home may be able to claim a deduction for a portion of what you paid for the insurance.

When is homeowners insurance tax deductible? 

Generally, homeowners insurance isn’t considered a tax-deductible expense — at least not for W-2 employees. Before 2018, some W-2 taxpayers could deduct home-office expenses on their federal tax returns. But, as a result of the Tax Cut and Jobs Act, W-2 taxpayers are no longer eligible for them, explains Eric Bronnenkant, CPA, CFP, and head of tax at the financial advisory firm Betterment.

However, if you’re self-employed and you use part of your home as an office for your business, then a portion of your homeowner’s insurance may be tax deductible.

How to claim homeowners insurance as a tax deduction

In order to claim a home office deduction and be able to deduct a portion of your homeowners insurance deduction, the IRS specifies that you must have a space that is used regularly and exclusively for business purposes. In other words, if you use your home office for anything other than your business (such as if it doubles as your guest room), it doesn’t qualify.

There are two ways to claim homeowners insurance deductions for your home office: the simplified method and the regular method.

Simplified method

The simplified method allows you to deduct $5 per square foot of your home office up to 300 square feet or $1,500. If you did not use the space for a home office during the entire year, this amount must be pro-rated.

Once you’ve figured out your deduction, it is deducted on Schedule C.

Regular method

The regular method, or the actual expense method, is more complicated. There are two components: direct expenses and indirect expenses, explains Christopher Jervis, accountant, enrolled agent, and president of Lone Wolf Financial Services.

Direct expenses are those expenses that are exclusively related to your business. Direct expenses include things like the cost of a business phone line, or painting and decorating your office. Direct expenses are 100% deductible.

Indirect expenses aren’t exclusively related to your business. They include mortgage payments, property taxes, utilities, and homeowners insurance. To deduct indirect expenses, you need to calculate the percentage of your home that your office takes up.

To get this, divide the square footage dedicated to your home office by the total square footage of your house. For instance, if your office space is 200 square feet and your home is 2,500 square feet, your base percentage is 8% so you can deduct 8% of your homeowners insurance premium for your home office. If you opt to use the regular method, you must complete Form 8829 and then transfer the calculated deduction to Schedule C.

The simplified method makes it easier for you to claim the homeowners insurance deduction, according to Bronnenkant. You don’t have to spend lots of time keeping track of different receipts or spreadsheets. However, if your actual expenses are higher, consider using the regular method.

A word of warning on the home-office deduction

If you decide to claim the home-office deduction on your income taxes, be aware that it’s the kind of thing that could draw additional scrutiny to your return.

“Many reports claim that home-office deductions can be a potential ‘red flag’ or increased risk of audit (technically an examination) by the IRS,” says Jervis. If you’re worried about increased auditing, Jervis recommends using the simplified method. Using the simplified method over the regular method reduces the risk of marginal error.

Bronnenkant also reminds taxpayers to take caution when filing for home-office deductions.

“Claim what you can defend, not as much as you hope to get away with” Bronnenkant says.