Flood insurance rates continue to increase significantly as the federal government attempts to solve for the $24 billion shortfall in the National Flood Insurance program. While the near-term increases may be postponed by Congress, some owners near the coast have already experienced sharply higher rates.
Since hurricane and flood insurance tends to be on everyone's mind in the Lowcountry, it is important that homeowners that have exposure should recognize the South Carolina Home Insurance Tax Credit and understand how it may benefit them.
The "excess insurance premium tax credit" has been available to South Carolina homeowners since 2007, but many owners are unaware that it exists and many accountants are not aware of it either.
In 2008, only 511 South Carolina taxpayers claimed the credit. While this number increased to a little over 2,400 by 2012, there are many additional homeowners that could potentially benefit from the credit.
The tax credit works this way: If the cost of insuring your primary residence exceeds 5 percent of your adjusted gross income, the state will pay you the difference, up to $1,250, as a tax credit.
For example, if your adjusted gross income is $50,000 and you paid $3,250 to insure your home, you could get a $750 tax credit (5 percent of $50,000 is $2,500, so the "excess insurance premium" amount would be $750).
This is not "refundable" tax credit, so if you don't owe state income tax you won't get a check. However, it is a dollar-for-dollar reduction in your state tax bill. If the credit is greater than the amount of tax owed, then it will bring your tax bill down to zero and the difference can be carried forward for up to five years.
And if you didn't know about the tax credit, but would have qualified, you could file amended returns to claim the credit for up to three years. The insurance costs that count toward the credit include homeowners insurance, any additional "wind and hail" insurance, and any flood insurance. Some homeowners might have three different policies, or maybe more. The income basis used in the calculation is your federal adjusted gross income, or AGI.
So if you own a home and pay big insurance bills, make sure to check if you qualify for South Carolina's excess insurance premium credit before filing your state tax return.