Generally, you can't write off the cost of home utilities on your taxes. The tax rules say that personal home expenses such as power, water, heating and air-conditioning aren't deductible. There are exceptions such as a tax credit for solar heating, but the exceptions don't stretch to heating oil. Business and rental properties work a little differently. If you have a home office or rent out your house, you can deduct some or all of your heating expenses.
While heating expenses are often not deductible for personal use, you may be able to deduct the cost of heating oil if you are buying it for a home office or rental property.
Tax Deductions for Business Use
The Internal Revenue Service lets you take a deduction for heating and other home costs – mortgage interest, insurance, electricity and the like – if you use part of your home for business. Using, say, 8 percent of your home as a home office would entitle you to write off 8 percent of your heating bills. The IRS says you can deduct a flat $5 per square foot if don't want to crunch all the percentages, up to a maximum of 300 square feet. If you're an employee and maintain a home office for your employer's convenience, you can take office expenses as an itemized deduction.
Requirements for a Home Office
Sitting in the living room when you handle paperwork does not turn the room into a home office. To claim a deduction for heating or any other home expense, the space must be reserved for business use on a regular and exclusive basis, and it must be your principal place of business. Space used as an office, rental space, storage or a meeting place for clients could all qualify for a heating-oil deduction as long as it meets these criteria. IRS Publication 587 has the details of the federal requirements.
Reporting the Write-Off
If you're self-employed, you take the home office deduction on Schedule C, for business expenses. You usually report rental income and expenses on Schedule E. If you're an employee, you add your home office expense and other "2 percent deductions" – listed in IRS Publication 529 – together, then subtract 2 percent of your adjusted gross income. Whatever remains is your write-off. You may be better off taking the standard deduction.
Rules for Rental Properties
If the property is a rental and you do not live in it at all, you must report all income and can generally deduct all out-of-pocket expenses in full. So, if you buy heating oil and provide this for your tenants to use, you can itemize and deduct the expense on your annual tax return. You generally deduct expenses in the year that you pay them.