Are utilities tax deductible?
Yes — for qualifying business use. Utilities paid for a business location can generally be deductible. For a qualifying home office using the actual-expense method, the business share of home-operating utilities such as electricity, gas, and water can be included in the home-office deduction. Phone and internet need separate treatment.
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On this page: Short answer · Who this applies to · When it's deductible · When it's not deductible · Utility types · Standalone business premises · Home office utility allocation · Schedule C · Example · Records · IRS sources · Related · FAQ
Short answer
Generally yes. Utilities for a business location are deductible to the extent they are business expenses. For a qualifying home office, whole-home utilities are generally indirect expenses under the actual method and are allocated through Form 8829.
Simplified home office method: actual home expenses such as electricity, gas, and water are not separately deducted. Business expenses that are separate from use of the home itself can still follow their own rules.
Who this typically applies to
- Self-employed people paying utilities for an office, studio, shop, warehouse, or other business location
- Home-based businesses using a qualifying home office and the actual-expense method
- Contractors and small businesses paying business telephone, facility, or other utility costs
W-2 employees: most employees cannot deduct unreimbursed utility or home-office costs federally. Form 2106 remains limited to specific qualifying employee categories.
When utilities are tax deductible
- You pay the utility cost for an active trade or business
- A standalone business location uses the service for business operations
- You qualify for the home-office deduction and use the actual method for home-operating utilities
- You exclude personal use when a service or property is mixed-use
- You keep bills and records supporting the business amount claimed
When utility costs are not separately deductible
- The cost is entirely personal
- You do not qualify for a business-use-of-home deduction but try to claim a share of ordinary home utilities as home-office expenses
- You use the simplified home-office method and also try to deduct actual home electricity, gas, water, or similar home expenses
- The utility is already included in rent and you did not separately bear the utility cost
- You are reimbursed for the same economic expense
Which utilities are tax deductible?
| Cost | Business premises | Qualifying home office | General reporting |
|---|---|---|---|
| Electricity | Business cost to the extent paid for the business premises | Actual method: generally indirect home expense | Line 25 / Form 8829 |
| Natural gas / heating oil | Business cost | Actual method: generally indirect home expense | Line 25 / Form 8829 |
| Water / sewer | Business cost | Actual method: generally indirect home expense | Line 25 / Form 8829 |
| Trash removal / cleaning services | Business cost | Business share can be an indirect home expense under the actual method | Line 25 / Form 8829 as applicable |
| Telephone | Business telephone cost | Special first-home-landline rule; qualifying phone costs are separate from the home-office calculation | Line 25 under current Schedule C instructions |
| Internet service | Business-use cost can qualify | Use a separate reasonable business-use allocation; do not automatically use the home-office percentage | IRS does not give internet its own named Schedule C line; see the Internet guide |
See Is internet tax deductible? and Is a phone bill tax deductible? for the separate allocation and telephone rules.
FreshBooks — Organize business utility expenses
Keep utility bills categorized with the records supporting a business-premises cost or home-office allocation.
Standalone business premises: Business utility costs
Electricity, gas, water, telephone, trash, and similar services paid for a business location can generally be ordinary business expenses. For a location used only for the business, the business can generally claim the full amount it actually bears.
- Utility paid directly by the business: generally deductible business cost
- Utility included in rent: do not create a second utility deduction for an amount already included in the rent you paid
- Mixed business/personal property: deduct only the properly allocable business portion
Current Schedule C Line 25 is the dedicated Utilities line for trade-or-business utility expenses.
Home office utilities: Actual method vs simplified method
Actual-expense method
Whole-home electricity, gas, water, trash removal, and similar home-operating costs are generally indirect home expenses. Publication 587 says the business percentage for utilities is generally the same as the percentage of the home used for business.
You can use any reasonable method to determine the home's business percentage. Common methods are business square footage ÷ total home square footage, or—when rooms are approximately equal in size—business rooms ÷ total rooms.
Simplified method
The simplified method uses $5 per allowable square foot, up to 300 square feet. You do not also deduct actual expenses related to use of the home, such as home electricity, gas, and water, for that same year.
Separate business expenses that are not expenses of operating the home itself can still be deductible under their own rules. This is why business internet and qualifying telephone costs should not simply be folded into the home-utility square-foot calculation.
For the deeper home-only treatment, see home office utilities.
Where utility expenses go on Schedule C
| Situation | Latest finalized treatment |
|---|---|
| Utilities paid for a business location | Schedule C Line 25 — Utilities |
| Home electricity, gas, water, etc. under actual home-office method | Form 8829 → Schedule C Line 30, subject to the home-office rules and deduction limit |
| Home office using simplified method | No separate actual home-utility deduction; simplified amount is claimed through the Schedule C home-office calculation |
| Qualifying business telephone costs | Line 25; do not include them in Form 8829 home expenses |
| Business-use internet | Separate business-use expense; the IRS instructions do not name an internet-specific Schedule C line |
The base local charge for the first landline into a residence is personal and nondeductible. Additional qualifying business telephone costs can be deducted separately. Final 2026 Schedule C instructions are not yet available as of August 18, 2026, so confirm final line numbering when filing.
TurboTax — Report utility and home-office expenses
Use the business and home-office sections to keep standalone utilities, actual home expenses, and separate phone or internet costs in the categories that apply.
Example: Home office utilities using actual expenses
- Home size: 1,200 sq ft
- Qualified office: 150 sq ft
- Business-use percentage: 12.5%
- Annual electricity: $1,800 × 12.5% = $225
- Annual gas/heat: $960 × 12.5% = $120
- Annual water: $480 × 12.5% = $60
- Total allocated home utilities in this example: $405
Internet and qualifying telephone costs are not added to this $405 using the home-office square-foot percentage; analyze those services separately under their own business-use rules.
What records to keep
- Monthly or annual bills for electricity, gas, water, trash, telephone, and other claimed services
- Proof of payment
- For actual home-office expenses, the reasonable method used to determine the home's business percentage
- Records showing that the home workspace meets the applicable home-office requirements
- Separate business-use calculations for mixed-use internet or telephone service
- Prior Form 8829 carryover records when relevant
FAQ
Are utilities tax deductible?
Generally yes for utilities paid for a trade or business. Utilities for a business location generally go on Schedule C Line 25. For a qualifying home office using actual expenses, the business portion of home-operating utilities is generally calculated through Form 8829.
Can I deduct utilities if I work from home?
Yes if you qualify for the business-use-of-home deduction and use the actual-expense method. Home-operating utilities such as electricity, gas, water, and trash are generally indirect expenses allocated using the home's business percentage. Under the simplified method, actual home utilities are not separately deducted.
How do I calculate the business percentage for home utilities?
Publication 587 allows any reasonable method for determining the home's business percentage. Common methods use business square footage divided by total home square footage, or the number of business rooms divided by total rooms when the rooms are approximately equal in size.
Is internet included in the home-office utility percentage?
Do not automatically allocate internet using the home-office percentage. Internet is a separate mixed-use business expense and the IRS Schedule C instructions do not give internet its own named line. Use a reasonable business-use allocation and avoid double counting it through Form 8829.
Where do utility expenses go on Schedule C?
Business-location utilities generally go on Line 25. Actual-method home utilities generally flow through Form 8829 to Line 30. Qualifying business telephone costs use Line 25 but are kept separate from Form 8829 home expenses.
Can I deduct 100% of utilities for a dedicated business location?
If a location is used only for your business and you actually bear its utility costs, the business can generally deduct the full qualifying utility amount. If the property or service is mixed-use, deduct only the business portion.
Looking for other deductible expenses? See the full Expense Deductibility Guide.
Last reviewed: August 18, 2026