When Is Renters Insurance Tax-Deductible?
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Renters insurance is only tax-deductible when it covers a location in which you are operating a business. More specifically, you can only deduct the percentage of your home allocated to business from your taxes. A home office must conform to IRS guidelines to be eligible for a tax deduction.
When is renters insurance tax-deductible?
Renters insurance is tax-deductible only when you are running a business from your apartment or rental home and you've set aside an area meant solely for work — similar to homeowners insurance tax deductions. The IRS requires that this area is your principal place of business, whether it's a small room that serves as an office or an alcove with your desk, computer and supplies beneath it.
The area you define as your home office must be used solely for work; a kitchen table that you work from doesn't qualify because it serves multiple purposes.
What does the IRS consider a home office?
- A home that is the main center of a personal business.
- The portion of your home being rented as an Airbnb.
- An area of your home dedicated to the work you do for an employer that requires you to work from home.
Essentially, the space must regularly and exclusively be used for business or as a principal place of your business. If you run a personal business from home and meet clients during normal business hours in the area designated for business, that space is tax-deductible. When you work at home for your employer, in order to take advantage of the renters insurance tax deduction you must be doing so for the convenience of your employer — not for your own convenience. You also cannot rent to your employer any part of your home or apartment.
When is renters insurance not tax-deductible?
The IRS will not qualify your deduction if the designated area serves another purpose besides being the place where you conduct your business. If your home office is set up as a helpful addition or convenience aside from another principal place of business, your renters insurance is not tax-deductible. For all other areas of your apartment or rental home, your renters insurance is not tax-deductible.
How to calculate the portion of the room that is deductible
The IRS allows two methods of calculating the maximum deduction possible for your home office expenses, including renters insurance: the Simplified Method and the Regular Method. Both methods use the square footage of your business space to determine how much of your insurance is eligible for a tax deduction.
Simplified Method
The Simplified Method involves measuring the square footage of your home office space and rounding it to the nearest average home office size of 100, 200 or 300 square feet. You then multiply that number by $5 (which is the current flat rate for this deduction), and that will give you your deduction, with a limit of $1,500. For example, if you use this method with a home office of 75 square feet, you’ll round 75 to 100 and multiply by $5. Your maximum tax deduction for renters insurance is $500.
This method doesn't require any calculation of actual expenses and works best if you have a small home office.
Regular Method
To determine your tax deduction using the Regular Method, first measure the square footage of your home office and compare it to the total square footage of your apartment or rental home. For example, if your home office is 100 square feet and your apartment is 1,000 square feet, your home office comprises 10% of the total square footage. This means that 10% of your renters insurance would be tax-deductible.
This method is a bit harder, as it requires more exact measurements. If you think your office is over 300 square feet, however, it will be the better option since the Simplified Method maxes out at 300 square feet.
How to keep good tax records
You should keep at least three years of tax records in case the IRS wants further justifications of your deductions and write-offs. Keep a copy of your annual or monthly renters insurance bill that states the cost of your total premium as it relates to the deduction you're claiming for your home office. You should also come up with a filing system that works for you. The system should llow you to easily find a given document and keep the rest organized and neat so nothing is lost.
How to deduct renters insurance on your tax form
If you're using the Simplified Method to determine how much of your renters insurance is tax-deductible, there are no extra forms or documents for you to fill out. Simply follow the steps detailed earlier to determine the maximum tax deduction of your renters insurance, up to the $1,500 limit, and list it as a deduction on your IRS forms.
If you're using the Regular Method instead, there is a 43-line Schedule C form, Form 8829 Expenses for Business Use of Your Home, that will require you to calculate your allowed deduction for renters insurance (among other potential tax-deductible expenses). It is worth consulting an accountant to decide which of these two methods is best for you based on your specific circumstances and to maximize your potential deduction.
If you are deducting your renters insurance for operating an Airbnb, you can include the renters insurance as an expense on the Schedule E form.
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