“Deductible” in real estate most commonly refers to two things: an insurance deductible — the out‑of‑pocket amount a homeowner or renter pays before an insurer pays on a claim — and a tax deductible — an expense (like property taxes, mortgage interest, depreciation, or repair costs) you can subtract from income on your tax return.
Choosing the right insurance deductible affects monthly premiums and your disaster preparedness; understanding tax‑deductible items affects annual after‑tax cost and investment returns. Lenders, leases, and local hazards (hurricanes, floods) also shape which deductible rules apply.
An insurance deductible is the amount you pay toward a covered loss before the insurer pays the remainder. If damage is $10,000 and your deductible is $1,000, you pay $1,000 and the insurer pays $9,000 (subject to policy limits and coverage type).
“Excess” is a synonym for deductible in many markets; both mean your share of a loss. Some insurers use “excess” wording, but the practical effect is the same: less cost for insurer, more up‑front cost for you.
Most homeowner and renters policies apply deductibles per claim/incident. Some catastrophe or hurricane deductibles are applied per event across multiple properties or units. Annual policy deductibles are rare for standard homeowner policies.
Insurers use fixed dollar deductibles (e.g., $500, $1,000) for common perils. Percentage deductibles (e.g., 1%–5% of dwelling limit) are typically used for named‑storm, hurricane or windstorm coverage in coastal areas — the deductible amount moves with your insured value.
Common fixed deductibles: $250–$1,000 for renters and some homeowners, $1,000–$2,500 for higher‑value homes. Lower deductibles are common for condo HO‑6 or low‑risk areas; higher fixed deductibles are chosen to lower premiums or for seasonal homes.
Typical hurricane/wind deductibles: 1%–5% of the dwelling coverage limit. Example: on a $300,000 dwelling limit, a 2% hurricane deductible equals $6,000 out‑of‑pocket per qualifying storm.
Example A — Fixed deductible:
Damage = $12,500, Deductible = $1,000 → You pay $1,000; insurer pays $11,500 (minus any depreciation or coverage limits).
Example B — Percentage hurricane deductible:
Dwelling limit = $300,000, Hurricane deductible = 2% → Deductible = $6,000. If covered damage = $20,000, you pay $6,000; insurer pays $14,000.
Raising a deductible usually lowers your premium. Typical industry examples: increasing from $500 to $1,000 can save 10–20% on premium; moving from $1,000 to $2,500 can save 15–30%. Exact savings depend on insurer and property risk.
| Deductible | Estimated premium change |
|---|---|
| $500 | Baseline (higher premium) |
| $1,000 | ~10–20% lower |
| $2,500 | ~20–35% lower |
Most lenders require homeowners insurance covering dwelling for at least the loan balance and sometimes limit deductibles to protect collateral — common lender‑requested maximum is $2,500 or a percentage cap. Check your mortgage docs for exact language.
Escrow (impound) accounts pay premiums and property taxes but not deductibles. If you make a claim, you must pay the deductible from personal funds. Some mortgage servicers can advance funds in extreme cases, but it’s not standard.
At closing, confirm the required minimum coverage, any deductible cap, and proof of binder or policy. If the lender requires a max deductible lower than you planned, arrange coverage adjustments before funding.
Some leases include clauses making tenants responsible for damage they cause, including costs up to the insurance deductible. Look for language like “tenant liable for damages caused by tenant’s negligence” or explicit “tenant pays deductible if caused by tenant.”
Tenants should carry renters insurance with a deductible they can pay and include liability coverage for accidental damage. Recommended lease sentence: “Tenant shall maintain renters insurance and is responsible for any deductible amount for claims arising from Tenant’s negligence.”
If the repair cost is only slightly above your deductible, it may not be worth filing because a claim can raise premiums. File when repair costs significantly exceed the deductible or when required by lender/tenant/health and safety.
Denials often happen due to policy exclusions, missed notice deadlines, poor documentation, or failure to maintain property. Avoid denials by reading your policy, documenting damage quickly, and keeping records of maintenance and repairs.
If you have a 2% hurricane deductible on a $400,000 dwelling limit, deductible = $8,000. If damage from a named hurricane = $30,000, insurer pays $22,000 after you cover the $8,000 deductible.
NFIP and many private flood policies use dollar deductibles (e.g., $1,000–$10,000). Flood deductibles are applied per policy and per claim; flood coverage typically excludes other perils included in homeowner policies.
States with frequent storms may allow percentage deductibles or require higher minimums. Check state insurance department guidelines for region‑specific rules.
An insurance deductible you pay to repair your personal residence is generally not tax‑deductible on your federal return. However, insurance premiums for rental properties are deductible business expenses; property taxes and mortgage interest may be deductible for homeowners who itemize.
Personal casualty losses are limited and subject to thresholds: after the 2017 Tax Cuts and Jobs Act, personal casualty loss deductions are mostly limited to federally declared disaster areas. For business/rental properties, casualty losses after insurance and deductible payments can often be deducted as business losses with proper documentation.
For rental properties: insurance premiums, repairs, maintenance and the cost of deductible payments (you paid to restore property) are typically deductible business expenses. Keep receipts and record how the deductible was applied to each repair.
Insurers rarely waive deductibles except in specific circumstances (e.g., first‑party settlements where insurer agrees to goodwill payment). You can negotiate deductible levels and premium discounts when shopping or renewing policies, but deductible waivers are uncommon.
Change deductibles via a policy endorsement with your insurer or agent. Changes usually take effect at renewal or on an agreed effective date; your premium will be adjusted accordingly.
Raising deductibles reduces small claims and may improve long‑term premiums. Insurers review claims history during underwriting — frequent small claims can increase rates or lead to nonrenewal regardless of deductible.
Keep a dated log of all communications with contractors, adjusters and insurers, including names, phone numbers, and summary notes of conversations.
Lenders/tax authorities may ask for repair invoices, proof of payment, insurance claim documents, and photos showing pre‑ and post‑damage condition.
Home value/insured dwelling limit: $300,000. Options: $1,000 fixed deductible vs 2% hurricane deductible (coastal insurer requirement).
Decision factors: If you can’t comfortably pay $6,000 after a storm, choose the fixed deductible or buy excess savings. If premiums are substantially lower with a 2% deductible and you have emergency funds, the percentage deductible may save money long term.
Rental damage: tenant causes $4,500 of water damage. Lease states tenant responsible for damage resulting from negligence and must reimburse landlord for costs up to the property’s insurance deductible ($1,500).
Best practice: landlord documents damage, gets contractor estimate, invoices tenant for deductible amount and documents collection attempts.
Average deductibles fall between $1,000 and $1,500 for homeowners; renters often carry lower deductibles like $500. Averages vary by region and insurer.
Most homeowner and renters policy deductibles apply per incident/per claim. Some catastrophe or hurricane deductibles apply per event and could affect multiple claims from the same storm.
Responsibility depends on the lease. If the lease assigns responsibility for tenant‑caused damage, the tenant should pay the deductible; otherwise the landlord usually pays and may seek reimbursement.
Deductibles are not refundable. They may be reimbursed if a third party causes the damage and is successfully pursued for recovery, or if a tenant reimburses a landlord per lease terms.
The insurer subtracts the deductible from the covered loss amount before paying. The deductible reduces the insurer’s payout but does not change policy limits or coverage exclusions.
Read your Declarations page for: dwelling limit, deductible amounts, hurricane/wind deductible language, exclusions, and endorsements. Request specific policy pages if unclear.
Check FEMA and your state insurance department for disaster‑specific rules, and consult IRS guidance for casualty loss and rental property tax treatment. For rental tax deductions and depreciation, review IRS rules or a tax advisor.
