Landlord Insurance Tax Deductions

In the midst of tax season, understanding what expenses do and don’t qualify as deductions for your rental property business can be tricky. You want to maximize your profits of course, but carefully and legally. If you’re wondering whether landlord insurance premiums can qualify as deductions on your taxes, then the short answer is yes. The long answer? We’ll dive into it below.

What Is the Landlord Insurance Deduction?

Landlord insurance for rental property businesses (sometimes referred to as rental property insurance) differs in coverage depending on your policy. Most lenders require landlords have insurance coverage in order to take out a mortgage, but it’s also generally encouraged since it protects buildings, unattached structures, personal property, and the loss of rental income depending on your circumstances and coverage.

In the event of natural disasters, theft, and other causes of property damage, you can count on insurance to have your back for financial support. Even if you require tenants to have their own renters insurance, it’s still important you have your own landlord policy, as renters insurance generally only protects the tenant’s personal property and not the building itself.

If you don’t currently have coverage for your rentals, you may be asking yourself “How much is landlord insurance anyway?” The answer to that question, of course, depends on a variety of factors, such as the value of your property, its location, the breadth of your coverage, and the company you’re covered by. Depending on the state, premiums (the annual fee for coverage), can be anywhere from $600-$2,000. If that cost surprises you, remember that landlord insurance serves as a way to protect your business in the event of a disaster. Additionally, keep in mind that your insurance premium generally qualifies for the rental property insurance deduction, so you will be able to keep some of this cash in your pocket in the long run.

How to Qualify for the Landlord Insurance Deduction

It’s important to note that general homeowner’s insurance and landlord insurance are two very different kinds of insurance, and must not be treated the same. There are, however, some nuanced exceptions. For example, if you don’t have landlord insurance and you only rent your home out during the summer, then you can deduct your homeowner’s premium for those summer months. This should be as simple as adding together the applicable monthly premiums and reporting the total on your tax forms.

If you are renting out a property year-round, then the process is simpler. To qualify for this deduction, you must have paid for an active landlord policy with a legitimate insurance company, and you must be renting the property out (or attempting to) during that tax year. You’ll add your monthly premiums together and report the total on your Schedule E form, which we’ll discuss further below.

Claiming the Landlord Insurance Deduction

Claiming the rental property insurance deduction is relatively easy, as there is an entire line dedicated to it on each year’s Schedule E form. As seen on the 2024 version, you’ll report the total amount you paid that tax year for landlord insurance on line 9 labeled “Insurance” of Part I.

If you rent out your home part-time or only a portion of it, then you’ll be able to deduct the applicable months of homeowner’s insurance or a fraction of the premium for your taxes. Be sure to report only this fraction of the premium as a deductible, otherwise you could face IRS penalties. In these scenarios, however, it is still highly recommended to take out some form of landlord insurance, as homeowner’s insurance will not guarantee you the same protections.

Likewise, the IRS website specifies that you can only claim insurance premiums for the year in which they are applicable. This means if you were to pay a lump sum for five years of coverage, you would only be able to deduct one-fifth of the lump sum for each of the applicable five years. Each year, you would report the fraction of the total in the same way you typically would on line 9 of your Schedule E.

How Much Can I Save With the Landlord Insurance Deduction?

With the rental property insurance deduction, you can lower your taxable income by a few thousand dollars each year depending on the cost of your premium. Let’s say your premium is $2,500 annually. You’ll report this $2,500, and a percentage of that amount (based on your tax bracket) will be shaved off of your taxable income for the year. And with a smaller taxable income, you’ll pay less to the IRS in taxes than you otherwise would have. That saved money will add up quickly, especially when paired with other tax deductions such as repairs & maintenance land mortgage interest deductions.

Conclusion

Saving money by deducting landlord insurance for rental property is well within your grasp. It’s one of the more straightforward deductions, so as long as you correctly report your premiums and understand the nuances outlined above, you should be well-equipped to reap the benefits of deducting your landlord insurance premiums.