Is Hazard Insurance Deductible? What You Need To Know

Unless you’re Logan Roy, most people need a mortgage to buy a property — and mortgages come with stipulations, one of which is hazard insurance. Hazard insurance is actually part of a homeowners policy, and it specifically protects your home against natural disasters. 

But we’ll get more into the details of what hazard insurance covers below, along with a breakdown of when hazard insurance is (and is not) tax deductible. 

What Is Hazard Insurance?

Hazard insurance (also known as dwelling coverage) protects the physical structure of your home. This part of your coverage deals with rebuilding your home and covers damage from fires, blizzards, snow, and the like. 

But you should note that not all natural disasters are covered — including flooding, earthquakes, war, or nuclear attacks, among others. You’ll want to double-check your policy to make sure you know what other coverage you’ll need to have — and then potentially purchase a separate policy (like flood insurance) to fully protect your home. 

For those events that are covered, hazard insurance won’t pay you the sale value of your home. Rather, it will cover what it would cost to restore damaged properties to their pre-disaster state, providing payment up to a predetermined dollar amount. This means you’ll want to select a policy that is robust enough to pay to fully repair your home.

How Much Hazard Insurance Should You Have?

Since hazard insurance (or dwelling coverage) is part of your homeowners policy, the broader question is how much homeowners insurance coverage you need. Consider the following: 

• Your personal property: Are you a minimalist or a maximalist? Is your home filled with priceless heirlooms or Ikea’s 3-drawer Malm chest? Know what you own and how much it will cost to replace your belongings. Likewise, if you own a lot of high-value items (like computers, jewelry, and collectibles), you may want additional coverage. 

• Additional living expenses: Some homeowners policies cover living expenses that (unfortunately) rack up during the rebuild process, including hotel bills and meals.  

• Liability insurance: Liability insurance comes with homeowner’s insurance and covers any bodily injury that takes place on your property. Though lenders typically require at least $100,000 in coverage, most lawyers and insurance experts recommend obtaining between $300,000 and $500,000 of coverage. 

• Umbrella policy: An umbrella policy can help extend coverage beyond what a standard policy pays out. The more liability insurance you have, the cheaper your umbrella policy will be. 

It’s essential to consider the big picture when determining your insurance needs. It’s your home, after all! Once you’ve come up with a rough estimate of what you need — and had a look at your budget — you can start looking at policies. Remember that age, location, and size of your home — as well as your claim history — are all factors that will affect your premiums. 

Is Hazard Insurance Tax-Deductible?

Yes, taxes are annoying, and yes, it seems like tax season sneaks up on us every single year. But although most of us would rather do almost anything instead of our taxes, the IRS does offer tax breaks, credits, and write-offs that can help make tax day just a little bit easier. 

We can’t tell you the number of times we’ve been asked if homeowner’s insurance is tax deductible. Unfortunately, the real estate section of our glorious tax code is not easy to decipher. That’s why we broke down a few common scenarios:

• If it’s your primary private residence: If your property is your primary place of residence, you cannot deduct your homeowners insurance premiums from your tax return. Since hazard insurance (or dwelling coverage) is a part of your overall homeowners insurance policy, it’s not possible to deduct it from your taxes. 

• If you have a home office: If you use part of your home for your business, you can deduct a percentage of your premiums, equal to the percentage of the property used for business purposes. Say 10% of your home is your office: this means you can deduct 10% of your premiums. 

• If you use your property as a rental: Rental properties provide income, so business expenses related to the property are deductible under Section E on your tax return forms. 

• If your property was impacted by a federally-declared disaster: If you file a claim that doesn’t cover the total damage following a federally-declared disaster, you may be able to deduct the amount above what insurance pays. 

But our final recommendation: we’re insurance experts, not tax experts. So speak with your accountant to learn about what other deductions and credits you might qualify for.

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Insurance, taxes, converting the temperature from Celcius to Farenheit: it’s all so confusing! Luckily, there’s Marble, which can help you keep things organized and clear (although not in terms of figuring out the weather). With Marble you can search for and manage your insurance policies, compare quotes, and earn rewards. Sign up today!