Deducting utilities on your Schedule C is relatively straightforward. Utilities are expenses associated with providing public services to your business location. Where these expenses get deducted depends on the location of the utilities. Are they in your home where you have a home office or at a separate site used for business?
Separate Business Location:
Utilities for a business located outside of the home office are deducted on Schedule C. Utilities commonly include:
- Fuel such as propane, natural gas or oil used for heat or cooking,
- Trash Removal,
- Land-line phone service, and
- Internet connection
These items get deducted as utilities, even if you also have a qualified home office.
For example, Sarah primarily works from her home office. She also shares the rent and utility costs of a conference room with several other agents. This arrangement allows her to meet with clients in a business setting when advantageous. The amount she pays for her share of the utilities gets deducted as utilities on Schedule C.
Home Office Utilities:
Most Real Estate Agents operate out of their homes. Do not report utilities for a home office on Schedule C. Home office utilities get deducted on Form 8829 when claiming actual home office expenses. Use Form 8829 even when the office is a separate structure on the same lot as the agent’s residence. For more information on deducting utilities on Form 8829, please read our article on Deducting Actual Home Office Costs.
When an agent has a qualified home office, there are a few costs that and not deducted as utilities on schedule C or Form 8829. Here’s a brief list:
- A single telephone land-line shared by the home and office is not deductible as a business expense. This rule is far older than cell phones and assumes that the first phone line coming into a home has to be persona - no two ways around it. When there is only one phone line to the house, only long-distance business calls get deducted. They are usually an Other Expense on Schedule C. The cost of a second phone line/number (such as a fax line) is also deductible as an Other Expense. One could also argue that the second phone line represents a “direct” home office utility cost on Form 8829. In my opinion, the difference boils down to semantics. Either location is acceptable.
- Internet shared by the home and home office gets deducted as an Other Expense. The deductible amount is the percentage of cost that most accurately represents business use. Note: If you stream television and other non-business services over the same connection, business-use may not be very high.
- Cell Phones are not utilities. They get deducted as Other Expense on Schedule C based on the percentage of business vs. personal use.
Summary and Invite: We hope this article helps you understand utilities deducted by Real Estate Agents who are sole proprietors. If you’d like some assistance cutting a Real Estate Agent’s highest cost - taxes, we invite you to download our Real Estate Agent Tax Organizer.
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