If you are a landlord, you may have purchased an insurance policy to protect yourself against certain basic risks and liabilities. However, you may have wondered at some point whether this type of policy is tax-deductible. Here is a close look at this subject.
What Does Landlord Insurance Cover?
A standard landlord insurance policy generally covers property damage that results from natural disasters, theft and vandalism. It also includes a liability clause that can protect you, to include the coverage of legal fees, in the event that someone becomes injured on the property. If you live in an area where earthquakes and/or floods are common, your landlord policy can also cover you against these incidents, although this may require a “rider policy”.
Is Landlord Insurance Tax-Deductible?
The short answer to this question is “yes”, you are legally allowed to deduct your whole landlord insurance premium for whatever property you operate as a rental (e.g. condos). The IRS counts this as a routine business expense for real estate matters. This is true regardless of whether you choose to own property in your name or manage it as an LLC. If you have any tenants to whom you rent out rooms from your primary home, you can also deduct a percentage of the homeowners’ insurance policy associated with this residence. The specific amount for your deduction should be proportional to the total square footage of the residence.
Checklist for Real Estate Expenses
In order to maximize your tax benefit, it’s important to track all of your rental property expenses. Here is a checklist to help you do that:
- Mortgage Interest
As a landlord, you may have a reason to take out loans to repair or maintain your rental property. Fortunately, you can deduct any interest you accrue on a loan tied to this property, including interest on home equity loans.
If your property taxes are high, you may qualify for a deduction on your personal income tax, since landlord insurance is tax-deductible for both local and state government taxes (not federal taxes). The various fees associated with property taxes can also be deducted; these include occupancy taxes and hospitality fees for individuals who use companies, such as AirBnB, to obtain renters for their property.
If your tenants repay you for the cost of utilities, these are not tax-deductible. You are only allowed to deduct expenses that you have incurred without reimbursement. Any other services for tenants, that you fully pay for, are tax-deductible.
If you invest in an asset with a value that is projected to remain more or less intact after a few years, (e.g. an appliance or a computer) it is likely that the IRS won’t allow you to claim that entire expense in a single year. In these cases, you’ll be prompted to abide by a “depreciation schedule,” which outlines exactly how much (percentage-wise) of this expense you may claim annually.
The IRS has published a full schedule for depreciation that details the useful lifespan for each type of item.
All repairs are tax-deductible; however, repairs that are not considered “improvements” (e.g. toilet replacement, basic landscaping) are not subject to depreciation rules.
Other tax-deductible items include fees for advertising your rental property on websites such as Zillow, cleaning and maintenance costs and referral fees for securing tenants.
How Much Does Landlord Insurance Cost?
According to ValuePenguin.com, the average cost of a landlord insurance policy in 2019 was approximately $1,300 per year, which was 20% higher than the average premium for homeowners’ insurance. The difference is primarily due to the fact that landlord policies typically cover larger buildings, thus the liability level is different.
Speak to the Landlord Insurance Pros
Contact the experts at Pro Insurance Group to learn more about the benefits and coverages of landlord insurance. We are dedicated to serving as one-on-one advocates for each of our clients, regardless of their insurance needs and budget.
If you provide rentals of any type of residential or commercial property, including condos, you can benefit significantly from acquiring landlord insurance. Our policies provide protection against property damage tied to incidents of theft, vandalism and natural disasters. They also include liability coverage to protect anyone injured on your property.
At Pro Insurance Group, we understand that rental properties may be subjected to many types of risks, so we will always strive to provide you with the best protection.