For landlords looking to properly protect their rental property from risks associated with leasing it out to tenants, landlord insurance is a good option. Commercial property owners also can look to commercial real estate or business interruption insurance policies to protect their assets and income.
While homeowners insurance will provide some liability and property damage coverage in case of an event such as a fire, landlord insurance adds extra coverage to protect landlords from risks associated with renting a property. This includes coverage for loss of rental income.
Commercial property owners might have rental loss insurance as part of a commercial real estate policy or business interruption insurance, which covers income loss due to an unexpected event.
Landlord insurance, also called rental property insurance, covers risks associated with renting your home, apartment, or condominium to tenants for long periods of time. Coverage typically includes loss of rental income for landlords along with property damage and liability costs. A landlord insurance policy is often recommended for homeowners who rent a property for at least six months.
Loss of rental income protects landlords against the risk that a property will be unable to be rented out due to damage caused by an event covered by insurance, such as fire, lightning, wind, or hail. This rental reimbursement will ensure you do not lose the income you would have collected from rent.
A property owner’s commercial real estate insurance also may include rental loss insurance. This coverage often covers one month of rental income, but extended coverage can be added. Rental loss insurance also could be included in business interruption insurance.
Rental income losses can be reported on the Internal Revenue Service tax form 1040 Schedule E. For tax purposes, rental property losses often are considered passive losses. A passive activity loss (PAL) allows owners to deduct losses if they collect income from other sources, such as positive income from another rental property. If your rental income does not cover your losses in the tax year, you typically can carry the excess forward into future tax years.
If you are in the property management business working in activities related to that business at least half of your annual working hours, rental property income may be considered active income for taxes. A real estate professional also can deduct rental income losses. If you actively participated in a rental real estate activity, you may be able to deduct up to $25,000 of loss incurred from a rental property. Check the IRS guidelines on the rules for more information.
The IRS requires taxpayers to turn a profit from a business in at least three of five consecutive years. If you claim a loss for three out of five years, the IRS will classify your business as a hobby, meaning you cannot claim related expenses on your taxes.
Landlord insurance and commercial real estate insurance policies often include coverage to protect you and your business from a potential loss of income due to unexpected events. Policies can vary, so it is important to check with your insurer to confirm that the coverage includes what you need.