Is Renters Insurance Tax Deductible?

When it comes to filing your taxes, understanding which credits you qualify for can be confusing. No one wants to turn down a chance to save some money, so you might be wondering, as a renter, if you can claim your renters insurance premiums on your taxes. Let’s take a closer look at if and when renters insurance is tax-deductible.

You can only claim some of the cost of renters insurance on your taxes when there’s a dedicated room in your home used specifically for operating a business. The IRS allows people who have home offices, homeowners or renters, to deduct their home business expenses from their taxes, which can include utilities, eligible repair costs, and insurance premiums, such as renters insurance.

If you only use your renters insurance to cover your personal contents, like most renters, you can’t deduct it from your taxes.

The IRS has specific guidelines regarding home offices, though. To be able to deduct business expenses, including renters insurance, from your taxes, you must be self-employed (or receive a 1099 from your employer) and use a specific space in your home “regularly and exclusively” for business, or as your “principal place of business”.

Deducting business expenses from your taxes when you have a home office means there’s no other location in which you conduct “substantial administrative or management activities” related to your business. If you work from your living room or a desk in your bedroom, you won’t be able to deduct renters insurance. You need a location solely for business in your house to qualify.

You should check with your accountant or a tax expert before making the final decision to claim renters insurance on your taxes. If you do, remember to keep all of your receipts for your business expenses in case the IRS wants to verify.

There are two ways to deduct business expenses, including renters insurance, when you have a home office: the simplified option and the regular method. As you might imagine, the simplified option requires fewer calculations but isn’t always your best move.

Using the simplified option, you deduct $5 per square foot of home business expenses, with a maximum of 300 square feet. So, the largest amount you can deduct with this method would be $1,500.

This would be ideal for small business owners whose home office is under 300 square feet. You don’t need to factor depreciation in, either. If your home office is larger than 300 square feet, you’ll have no choice but to use the regular method.

With the regular method, you’ll need to identify the exact square footage of the office space you use for business compared to the total square footage of your entire home. This percentage is the percentage of your business expenses that you can deduct from your taxes. 

For example, let’s say your apartment is 1,100 square feet, and your home office is 200 square feet. This means that about 18% of your apartment is for regular and exclusive business use. So, you can deduct 18% of your business expenses, including renters insurance, from your taxes. 

In this scenario, imagine you spent $250 a year on renters insurance. In this scenario, you would be able to claim 18% of your renters insurance cost, which comes to about $45. 

It’s important to note that you won’t find the renters insurance tax-deductible as its own line while you’re filing your taxes. If you’re claiming the deduction under the regular method, you use Form 8829, which you’ll file with your Form 1040. When using the simplified option, you can list it as a deduction for business expenses on your income taxes. 

Protecting your business is just as important as protecting your home from unforeseen damages or expenses – and sometimes your home and business are one and the same.

However, there’s an important distinction to make. Your renters insurance, even though it qualifies as a business expense to the IRS, may not protect your business equipment in the case of a covered loss.

Renters insurance is chiefly designed to protect personal property and liability. Equipment in a home office you use solely for business wouldn’t be personal property; it would be business property. You’d need a form of business insurance to cover these items.

Deducting rent itself works the same way described above. You can only claim some of your rent on taxes if it’s considered a business expense through the home office deduction. Typical renters cannot deduct rent from their taxes. 

However, some states offer a tax credit for qualified renters. A credit lowers your taxes, too. Tax deductions are expenses you accumulate throughout the year that the IRS allows you to subtract from your income. To qualify for a tax credit, on the other hand, you usually need to meet a certain condition. Tax credits are usually related to how much money you make.

Eleven states offer tax breaks to senior renters or renters with disabilities, while 13 states and Washington, D.C. offer tax breaks for renters if they make under a certain amount each year. The threshold you need to be under varies by state. The size of the credit varies, too.