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When is my renters insurance tax deductible?
Generally, renters insurance isn’t tax deductible. The exception is if you work from home in a room specifically designated for business endeavors — in other words, if you have a home office.
If you have a home office and your renters insurance covers it, you may be able to write off your renters insurance premiums as a business expense. However, there are several complicating factors that might disqualify you.
When is renters insurance not tax deductible?
Even if you work from home, you can’t write off renters insurance as a business expense if any of the following apply to you:
You work as a W-2 employee
If you’re a W-2 employee, you work for a single company under set hours and conditions. This is in contrast to independent contractors (who also use a different tax form, the 1099-MISC) and people who own their own businesses.
If you’re an employee, you can’t write off your home office as a business expense. You can only do so if you’re self-employed.
You don’t have a designated space for conducting business
Your home office must conform to the IRS guidelines to be eligible for deductions. If you use your workspace for any other purpose, you can’t write off your office-related expenses (including your insurance) on your taxes.
In other words, if your “office” doubles as a billiards room, or if you regularly kick back and read novels in it, it isn’t really a home office as far as the IRS is concerned.
However, your workspace doesn’t have to take up an entire room to count as an office. If you’ve designated a corner of your bedroom as a workstation, consisting solely of a desk, an office chair, and a few square feet of floor space, you’re allowed to call it a home office. (It’s just a very small one.)
Your renters insurance policy excludes property that you use for business
Renters insurance usually covers personal property that you occasionally use for work, like your laptop.
However, standard policies exclude property that you exclusively use for work. (This means that by default, your entire home office might not be covered at all — check your policy for details.)
To cover your business-related property, you need to buy an addition to your policy called an endorsement or rider.
How a renters insurance at-home business rider can qualify you for a tax deduction
If your renters insurance policy doesn’t cover the items you use for work, you can’t write it off as a business expense.
Fortunately, if your policy excludes business property or only covers it up to a set amount, your provider will probably offer a home-based business rider (also known as an at-home business rider) to cover your property and allow you to qualify for a tax deduction.
Choosing a home-based business rider
Your provider might offer several different business riders. For example, Allstate offers both a business property rider and a private office or studio rider.
Insurance riders are usually written in dense language, and it can be hard to figure out which one will provide the best coverage for your situation, so if you’re considering one, it’s best to call your provider and speak to an insurance agent.
How do I write off my renters insurance as a tax deduction?
To calculate how much of your renters insurance premium you can write off as a tax deduction, the IRS allows you to use two methods, which they call the simplified method and the regular method.
These methods aren’t specific to renters insurance; you can use them to determine the total tax deduction you’re allowed to take for all of your at-home business expenses.
What information do you need?
If you use the simplified method to calculate your tax-deductible business expenses, you just need to know the area of your home office in square feet.
To use the regular method, you need to know both your office area and the total area of your home.
Whichever method you use, you also need to know what your total business expenses were over the past year.
The simplified method
To use the simplified method, just multiply the area of your home office by five. The number you’re left with is the amount (in dollars) that you can claim as a tax deduction. For example, if your home office is 100 square feet, you can write off $500 of your yearly business expenses.
If you use the simplified method, you can write off a maximum of $1,500. That would correspond to a 300 square foot office. (For context, the average living room is around 330 square feet.)
If your office is larger than 300 square feet, you can probably save more by using the regular method.
The regular method
Using the regular (or “standard”) method, you can calculate your tax deduction with this formula:
Standard tax deduction = (area of office ÷ area of home ) x (total expenses)
What that means
To use the regular method, just figure out what percentage of your home’s total floor space is taken up by your home office. You can write off that percentage of your total business expenses as a tax deduction.
For example, let’s say your home is 1,000 square feet, and your home office is 350 square feet. Let’s also say your business expenses over the past year amounted to $5,000. Because 35% of 5,000 is 1,750, you can write off $1,750 on your taxes.
Claiming your tax deduction
You need to provide the IRS with a Form 8829 document listing your expenses and desired tax deduction, as well as the area of your office and home (which have to be measured precisely). Consider consulting an accountant to discuss the various categories of expenses and how to maximize your deduction.
It’s important to keep good records. The IRS may want proof of some or all of the expenses you’ve listed. In case they audit you, store a copy of your renters insurance bill and records of your other yearly expenses, along with at least 3 years of tax records in an organized file system.
What other at-home business tax deductions can I claim?
If your home is your primary place of work, you might be able to write off other expenses unrelated to insurance premiums, including:
- A percentage of your rent
- New work equipment
- Cleaning supplies
- Repair fees
- HOA fees
Because the cost of renters insurance is usually quite low, its contribution to your overall expenses will probably be pretty small.
Other types of insurance that may be tax deductible
Most of the time, insurance isn’t tax deductible. However, in certain circumstances, the following kinds of insurance can be:
If you have a service animal that helps you with a diagnosed medical condition (either mental or physical), you can write pet insurance off as a medical expense. To qualify, your pet must be officially trained and certified.
If your pet qualifies, you can also write off their other expenditures, including food, grooming, and vet bills.
Costs associated with business animals (such as guard dogs) are also deductible, and if you raise animals for a living, all of your business expenses are tax deductible, including pet care and pet insurance.
Business insurance premiums are usually tax deductible. Examples include:
- Casualty insurance
- Public liability insurance
- Professional liability insurance
- Commercial property insurance
- Workers compensation insurance
Auto insurance is tax deductible if you use your car in the course of operating your own business or your freelance job. If you use your car for personal purposes as well, determine what percent of your mileage is for work. The equivalent proportion of your insurance is deductible.
Certain employees can also claim this deduction, including Armed Force reservists, some performing artists, and local government officials.
If you own your home and have a home office, you can write off a portion of your premiums using the same methods that you’d use for renters insurance. In this respect, the two types of policies function in exactly the same way.