One major benefit of real estate investing concerns the various tax deductions available. While homeowners’ insurance premiums for your residence are not tax-deductible, as a real estate investor, you are able to deduct homeowners insurance premiums on a rental property as a business expense.
What Is Home Insurance?
Homeowners insurance, or property insurance, covers damage to the home and protects homeowners from liability if someone is injured on the property.
If you own a property outright, homeowners insurance is not required, although carrying it is certainly advisable. While homeowners insurance costs are rising, home insurance offers compensation if disaster strikes and offers liability protection.
If you have mortgage debt on the rental property, the lender will require that you carry sufficient homeowners insurance. Lenders are protecting their investment in your property.
Personal Residence vs. Rental Property Home Insurance
When it comes to your personal residence, the IRS does not permit you to deduct your home insurance premiums on your federal tax return. When it comes to business purposes, the ability to deduct insurance premiums is completely different.
The entire amount of homeowners insurance premiums on a rental property is tax-deductible.
Landlord Insurance
Homeowners insurance may prove sufficient if you only receive rental income on your property occasionally. That’s the case if a big event is coming to your town and you rent your home out to guests attending. Most homeowners insurance covers that exception, but if you are self-employed as a landlord, you need homeowners insurance tailored to small business owners.
A landlord policy is also known as a dwelling form 3 policy. Unlike dwelling form 1 or 2 policies, a dwelling form 3 policy covers the home for full replacement value rather than the depreciated value.
Besides property damage and liability, landlord insurance can protect you from rental income…