How do you calculate insurance premiums during tax time?

Question

So i'm wondering how do I calculate insurance premiums for tax purposes?

Lets say my coverage starts June 15th 2017 to 2018 and its $400, and my next premium is from June 16th 2018 to 2019 for $500.

If i'm looking to get deduction on my 2018 premiums, would i divide by 365 days for the $400 and $500 and figure it out that way?

Thanks!

Basit Siddiqi · Answer

@Dan TrinhThere is a cash-basis of accounting and an accrual-basis of accounting.If you are a cash-basis taxpayer - you would normally deduct the full insurance payment in the year that the payment is made so long as amount paid for the insurance policy ends within the next year.Example - you can be eligible to pay and expense for an insurance policy that lasted one year.However, you may not be eligible to deduct a portion paid for an insurance policy if the policy lasted several years.

In your case - if you paid for the $400 insurance policy in 2017 - it was a deduction on your 2017 tax return.
if you paid for the $500 insurance policy in 2018 - it is a deduction on your 2018 return.
If you paid $900 in 2017 - then you have a slightly sticky situation.

Michael Pearse · Answer

@Dan Trinh Yes you are exactly right on how you are calculating the 2018 premium, and dividing by the amount of days. Another option to get a more precise number is by talking to the insurance company that is used on the property. You can ask for a quote based off of those specific dates.

Cheers!

David R Haywood · Answer

Basit is right - for most tax payers you can only deduct insurance premiums when they are actually paid out of your escrow account, regardless of coverage dates.

How do you calculate insurance premiums during tax time?

How do you calculate insurance premiums during tax time?

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