Are Utility Taxes Deductible?

Are Utility Taxes Deductible?
Utility taxes are determined at the state, county or city level.

Overview of Utility Taxes

Some states, counties and cities levy a utility tax on residents. It typically covers telecommunication services, electricity, gas, trash and water services. It may be a flat tax, or it may be based on the resident's usage. In either case, the tax appears on the resident's utility bill along with general service charges. The utility company then collects the tax and remits it to the state or local tax collector.

Personal Utility Taxes

The IRS does allow individuals to deduct some personal taxes, including personal property and some state, local and foreign real estate taxes. However, the IRS specifically notes that money for services such as water, sewer or trash collection are not deductible taxes.

Utility Taxes for Rental Properties

There are a few scenarios in which a taxpayer can deduct utility tax. If a landlord pays any utilities for the rental property -- like trash, water or phone -- he can deduct the payment as a business expense. If a taxpayer rents out a room in his house, he can deduct a prorated portion of the utility expense based on the square foot of the rental room. For example, if the rented room is 200 square feet, and the home is 600 square feet, the landlord can deduct one third of his total utility expense. Landlords must calculate the annual amount paid for utilities and record the total in line 17 of Schedule E.

Utility Expense Business Deduction

If you own a business, the utility taxes you pay on its behalf are usually deductible. Business tax returns go under the "other deductions" line item on the face of the tax return. Only utility expenses you incur for your business offices and buildings are deductible. If you're a sole proprietor and you work from home, you may be able to deduct a portion of your utilities with the home office deduction. To qualify, you must have a dedicated area of your house you use exclusively for business purposes.