Work from Home Expenses — What Does the Tax Authority Actually Recognize?

Why is This Topic Important and Who is it Suitable For?

A question that many freelancers and business owners have been asking recently: "I work from home — how much of my household expenses can I deduct?" The answer is not black and white. The Israeli Tax Authority recognizes work-from-home expenses under certain conditions, but not in every case, and not in every amount.

If you are a freelancer who started working from home in recent years, or a exempt business owner or licensed business owner whose business activities are conducted from your apartment, it is important that you understand exactly what qualifies as a deductible expense. A mistake here can lead to two outcomes: either you miss out on tax savings you are entitled to, or you report expenses that the Tax Authority will not accept, resulting in a penalty payment.

This page explains the rules in a practical manner, with real-world examples.

How Does the Tax Authority View Work from Home?

First, it is important to understand the Tax Authority's logic. When you work from home, part of your housing expenses (rent, mortgage, electricity, internet, water) become business expenses as well. However, not every such expense is recognized, and not in its entirety.

The basic rule is: an expense is recognized if it is "an expense incurred for the purpose of generating income." In other words, if you were not working from home, you would not pay it (or you would pay less). This is the standard the Tax Authority uses.

In short, the Tax Authority asks: Is this expense due to the business, or is it a regular living expense? If it is due to the business — it is deductible. If it is a regular living expense you would pay anyway — it is not deductible.

Which expenses are recognized as deductions for a self-employed person working from home?

Let's start with expenses that the Tax Authority generally recognizes:

1. Depreciation of Home Office

If part of your apartment serves as an office—for example, a room dedicated to work—you can claim depreciation on that portion of the property. Depreciation is calculated according to a rate set by law (typically about 3-5% per year, depending on the asset type). If your apartment is worth 1,000,000 shekels and 20% of it is an office, you can claim depreciation on 200,000 shekels per year.

This also applies if you rent the apartment. In that case, you don't calculate depreciation (since you don't own it), but you can claim the proportional share of the rent as a business expense.

2. Portion of Housing Expenses (Rent or Mortgage)

If you rent an apartment or borrowed money to buy a home, you can deduct the proportional share of the rent or mortgage interest (not the principal). For example, if 25% of the apartment is an office, you can claim 25% of the monthly rent.

Important: This only works if you have a clear work location at home. If you work at a desk in the living room and it's not a dedicated office, it will be harder to justify.

3. Electricity, Gas, Water—Proportional Share

If you use electricity for lighting, cooling, or heating your home office, you can deduct the proportional share of these expenses. For example, if the office is 20% of the apartment, you can claim 20% of the monthly electricity bill.

In practice, the Tax Authority uses a standard formula: you calculate the percentage of the apartment that is office space, and you can deduct that same percentage from all fixed housing expenses (electricity, gas, water, apartment insurance).

4. Internet and Telephone

If you have an internet connection for business, or if you use your smartphone for work, you can deduct the proportional share. If 100% of your internet use is for work—you can deduct the entire internet expense. If it's 50% work and 50% personal, you can only deduct 50%.

5. Furniture, Equipment, and Office Supplies

A desk, chair, computer, printer, paper, pen—all of these are business expenses. If the equipment costs more than 500 shekels (subject to regulatory changes), you need to calculate depreciation on it over the years. If it's less—you can deduct it in the first year.

6. Fuel, Parking, Public Transportation

If you use a vehicle for work (attending meetings, driving to clients), you can deduct travel expenses. This includes fuel, parking at work premises, and tolls. It does not include regular commute from home to work—this is considered personal travel.

Which Expenses Are Not Deductible?

Just as it's important to know what is deductible, it's important to know what is not:

Rent or Mortgage Payments (in their majority)

If you live in an apartment and work from home, you cannot deduct your entire rent or all mortgage interest. Only the proportional part relating to the office area. If the apartment is 100 sq. m and the office is 15 sq. m, you can only deduct 15% of the rent.

Personal Expenses Unrelated to Work

If you buy a sofa for your living room, you cannot deduct it, even if you work from home. If you buy a lamp for general apartment lighting, it is not deductible. However, if you buy a specific lamp for your work desk in the office room, it is deductible.

Private Health Insurance

If you pay for private health insurance, it is not deductible. Even if you are self-employed. This is a personal expense.

Meals and Coffee at Home

If you drink coffee while working from home, it is not deductible. This is considered a living expense. However, if you buy coffee to entertain clients at your home, it is deductible.

General Apartment Maintenance

If you pay for general apartment painting, plumbing repairs, or cleaning of the entire apartment, the Israeli Tax Authority will consider it a personal expense, not a business expense. If you paint only the office room, it is deductible. If you pay for daily cleaning of the office only, it is deductible.

How Exactly Is the Proportional Share Calculated?

This is the practical question that comes up frequently: if I work from home, how exactly do I calculate how much of my housing expenses I can deduct?

The most common method is to calculate by area. If your apartment is 100 sq. m and the office room is 15 sq. m, the proportional share is 15%. You calculate 15% of your monthly rent, 15% of your electricity bill, 15% of your water bill, etc.

For example: rent of 4,000 shekels per month. If 15% of the apartment is an office, you can deduct 600 shekels per month, or 7,200 shekels per year. An electricity bill of 800 shekels per month? 120 shekels per month deductible, or 1,440 shekels per year.

A second method is to calculate by time. If you work from home 5 days a week, 8 hours a day, you can deduct the proportional share of housing expenses according to the time you spend at home working. This is more complicated and requires documentation, but it is also possible.

Most self-employed individuals we work with use the area-based calculation — it's simpler and easier to justify to the Israeli Tax Authority.

Important point: you need to document this. If you report work-from-home expenses, it's advisable to have documentation showing the office area, monthly rent, and electricity and water bills. If the Tax Authority conducts an audit, you need to be able to prove your figures.

Real-World Examples — Authentic Scenarios

Let's see how this works in practice with a few examples:

Example 1: A Freelancer Who Opened a Business in January

Danny is a freelancer working as a programmer. He lives in an apartment in Petah Tikva with an area of 90 square meters, and his apartment rent is 5,000 shekels per month. He dedicated a room of 18 square meters for work (20% of the apartment). In 2026, he can deduct the following expenses:

• 20% of apartment rent: 1,000 shekels per month, 12,000 shekels per year
• 20% of electricity bill (average 900 shekels per month): 180 shekels per month, 2,160 shekels per year
• 20% of water bill (average 200 shekels per month): 40 shekels per month, 480 shekels per year
• 100% of internet connection (2,000 shekels per year): 2,000 shekels per year
• 100% of office furniture and computer (assume 6,000 shekels): depreciation over 3-5 years, approximately 1,200-2,000 shekels per year

Total deductible expenses: approximately 18,000-19,000 shekels per year. This is substantial, and it is recognized by the tax authorities as long as Danny documents it.

Example 2: An Employee Seeking a Tax Refund

Sarah is an employee working as an HR consultant. Her employer did not deduct home office work expenses from her salary. She lives in an apartment of 80 square meters and has an office room in her home. In 2026, she can file for a tax refund for home office expenses, as long as she can prove them. If she deducts 15,000 shekels per year, and this is recognized by the tax authorities, she can receive a tax refund according to her tax rate.

Example 3: A Business Owner Working from Home

Moshe is a registered business owner working from home as a business consultant. He owns his apartment (not renting), and it is valued at 1,200,000 shekels. 12% of the apartment is used as an office. He can deduct the following:

• Depreciation on 12% of the apartment's value: 144,000 shekels × 4% (typical depreciation rate) = 5,760 shekels per year
• 12% of electricity, water, and apartment insurance bills
• 100% of office expenses (internet, telephone, furniture, equipment)

A business owner like Moshe needs to be more careful with documentation, as the tax authorities typically scrutinize registered business owners more closely regarding home office expenses.

Common Mistakes We See in the Field

Over the years we have worked with self-employed individuals and business owners in Petah Tikva and Ramat Gan, we have seen several recurring mistakes:

1. Deducting 100% of Rent Expenses

The most common mistake is when a self-employed individual or business owner attempts to deduct the entire rent as a business expense. This does not work. The Israel Tax Authority will reject it immediately. You may only deduct the proportionate portion that relates to your office space.

2. Lack of Documentation of Expenses

If you are reporting home office expenses, you must be prepared to substantiate them. This means keeping lease agreements, utility bills, photographs of your office, and receipts for equipment. If the Tax Authority conducts an audit and you cannot prove your expenses, it will not accept them.

3. Deducting Personal Expenses as Business Expenses

We have seen self-employed individuals attempt to deduct expenses such as health insurance, gym fees, or even vacations. This does not work. You must be clear: is this a business expense or a personal expense?

4. Failure to Distinguish Between Depreciation and Regular Expenses

Some self-employed individuals believe they can deduct all housing expenses in the first year. This is incorrect. Certain expenses (such as depreciation on property) are calculated over multiple years, not in the first year.

5. Working from Home Without a Dedicated Space

If you are working on your laptop in the living room, bedroom, or anywhere else in your apartment, it will be difficult to justify home office expenses. The Tax Authority will want to see that you have a dedicated location—an office in a room, or at least a fixed work corner.

When Should You Consult a Certified Public Accountant?

If you are self-employed or a business owner working from home, it is advisable to consult a certified public accountant in several cases:

If you are starting a new business. Before you report home office expenses, it is advisable to clarify with a certified public accountant which expenses are recognized under your circumstances. This will save you problems in the future.

If you are considering a tax refund. If you are an employee working from home and want to file a tax refund for expenses, it is advisable to first determine whether it is economically worthwhile. Not every tax refund is worth the effort.

If your home office expenses are substantial. If you report expenses that are large relative to your income, the Israel Tax Authority may conduct an audit. It is advisable to have a certified public accountant review your figures first.

If you are a holder of a registered business or a company. Registered business owners and companies face stricter scrutiny. If you work from home, it is advisable to work with a certified public accountant who knows how to present expenses in a manner the Israel Tax Authority will accept.

Summary — Your Task Now

If you are a freelancer, business owner, or employee working from home, this is the time to review your work expenses:

First, identify your home office space. This will be the basis for all your calculations. If you don't have a dedicated office, it's advisable to create one — this will make everything easier.

Second, collect all your receipts and invoices — rent, electricity, water, internet, equipment. You need to document your expenses.

Third, calculate the proportional share. If the office is 20% of the apartment, you can deduct 20% of all housing expenses.

Fourth, if you are unsure — consult with a certified public accountant. That's exactly what we're here for. A first consultation meeting at no cost can save you many problems in the future.