What utilities are deductible
Any utility expense paid by the landlord for a rental property is a deductible operating expense on Schedule E: electricity, natural gas, water, sewer, trash collection, and internet or cable if included in the lease. The deduction is in the year you pay the bill (cash method).
The most common scenarios where the landlord pays utilities: multi-family buildings where utilities are shared or centrally metered; short-term rentals (Airbnb/VRBO) where utilities are included in the nightly rate; rent-inclusive arrangements where utilities are bundled in one monthly payment; and commercial properties with certain lease structures.
Utility bills are easily documented — keep monthly statements or include them in a per-property expense log. If you pay online, bank records plus the utility account statements are sufficient.
Tenant reimbursements: income and deduction net to zero
If your lease requires tenants to reimburse you for utilities, those reimbursements are rental income when received. You then deduct the actual utility costs you paid. Net taxable income is zero on this round-trip — the reimbursement income equals the expense deduction.
Do not skip reporting the reimbursements as income just because the net effect is zero. Your Schedule E should show both the income and the expense. Under-reporting income (even when offset by an equal deduction) creates a discrepancy with any 1099 forms the tenant may issue and increases audit risk.
Allocation for mixed personal and rental use
If you use a property for both rental and personal use (vacation home), utility expenses must be allocated. The rental portion is deductible; the personal portion is not.
Allocation method: rental days ÷ total days of use (not vacant days). If you rented 90 days and personally used 30 days, your rental-use percentage is 75%, and you deduct 75% of utilities.
For a building where you live in one unit and rent another: allocate utilities by unit. If separately metered, each unit's utility bill is attributable to that unit directly. If not separately metered, allocate by square footage or unit count.
Frequently asked questions
Can I deduct utilities I pay on a tenant's behalf?
Yes. Utilities you pay for a rental property are operating expenses deductible on Schedule E, whether or not the lease calls for tenants to reimburse them.
What if tenants pay utilities directly to the utility company?
If tenants pay utilities directly, those costs are not your expense and you cannot deduct them. You also don't report them as income.
How do I deduct utilities for a duplex where I live in one unit?
Deduct only the rented unit's utilities. If utilities are on one meter, allocate by square footage or unit count between the two units.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.