If you use space in your home on a regular basis for providing daycare, you may be able to deduct the business expenses for that part of your home even if you use the same space for nonbusiness purposes. To qualify for this exception to the exclusive use rule, you must meet both of the following requirements.
- You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves.
- You must have applied for, been granted, or be exempt from having, a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law. You do not meet this requirement if your application was rejected or your license or other authorization was revoked.
If you regularly use part of your home for daycare, figure what part is used for daycare, as explained at Business Percentage, earlier under Figuring the Deduction. If you use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier.
If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. You do not have to keep records to show the specific hours the area was used for business. You can use the area occasionally for personal reasons. However, a room you use only occasionally for business does not qualify for the deduction.
To find the percentage of time you actually use your home for business, compare the total time used for business to the total time that part of your home can be used for all purposes. You can compare the hours of business use in a week with the number of hours in a week (168). Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2009). If you started or stopped using your home for daycare in 2009, you must prorate the number of hours based on the number of days the home was available for daycare.
Mary Lake used her basement to operate a daycare business for children. She figures the business percentage of the basement as follows.
| Square footage of the basement |
Square footage of her home
| =|| 1,600 |
| || || || || |
She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. During the other 12 hours a day, the family could use the basement. She figures the percentage of time the basement was used for daycare as follows.
| Number of hours used for daycare (12 x 5 x 50) |
Total number of hours in the year (24 x 365)
|=|| 3,000 |
| || || || || |
Mary can deduct 34.25% of any direct expenses for the basement. However, because her indirect expenses are for the entire house, she can deduct only 17.13% of the indirect expenses. She figures the percentage for her indirect expenses as follows.
|Business percentage of the basement||50%|
|Multiplied by: Percentage of time used for daycare|| × 34.25% |
|Percentage for indirect expenses|| 17.13% |
Mary completes Form 8829, shown later. In Part I, she figures the percentage of her home used for business, including the percentage of time the basement was used.
In Part II, Mary figures her deductible expenses. She uses the following information to complete Part II.
|Gross income from her daycare business||$50,000|
|Expenses not related to the business use of the home|| $25,000 |
|Tentative profit|| $25,000 |
|Painting the basement||$500|
Mary enters her tentative profit, $25,000, on line 8. (This figure is the same as the amount on line 29 of her Schedule C.)
The expenses she paid for rent and utilities relate to her entire home. Therefore, she enters them in column (b) on the appropriate lines. She adds these two expenses (line 22) and multiplies the total by the percentage on line 7 and enters the result, $1,585, on line 23.
Mary paid $500 to have the basement painted. The painting is a direct expense. However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34.25% – line 6). She enters $171 (34.25% × $500) on line 19, column (a). She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. This is less than her deduction limit (line 15), so she can deduct the entire amount. She completes the rest of Part II by entering $1,756 on lines 33 and 35. She then carries the $1,756 to line 30 of her Schedule C (not shown). taxmap/pubs/p587-004.htm#en_us_publink1000226369taxmap/pubs/p587-004.htm#en_us_publink1000226370
Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. The basement and room are 60% of the total area of her home. In figuring her expenses, 34.25% of any direct expenses for the basement and room are deductible. In addition, 20.55% (34.25% × 60%) of her indirect expenses are deductible.taxmap/pubs/p587-004.htm#en_us_publink1000226371
Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2009. She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. During the other 12 hours a day, the family could still use the basement. She figures the percentage of time the basement was used for business as follows.
| Number of hours used for daycare (12 x 5 x 25) |
Total number of hours during period used (24 x 175)
|=|| 1,500 |
| || || || || |
Mary can deduct 35.71% of any direct expenses for the basement. However, because her indirect expenses are for the entire house, she can deduct only 17.86% of the indirect expenses. She figures the percentage for her indirect expenses as follows.
|Business percentage of the basement||50%|
|Multiplied by: Percentage of time used for daycare|| × 35.71% |
|Percentage for indirect expenses|| 17.86% |
If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Claim it as a separate deduction on your Schedule C (Form 1040). You can never deduct the cost of food consumed by you or your family. You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates, later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.
If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs.
Reimbursements you receive from a sponsor under the Child and Adult Food Care Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C. If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C. Do not include payments or expenses for your own children if they are eligible for the program. Follow this procedure even if you receive a Form 1099 reporting a payment from the sponsor. taxmap/pubs/p587-004.htm#en_us_publink1000226375
If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. For these purposes:
- A family daycare provider is a person engaged in the business of providing family daycare.
- Family daycare is childcare provided to eligible children in the home of the family daycare provider. The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day.
- Eligible children are minor children receiving family daycare in the home of the family daycare provider. Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Eligible children do not include children who receive daycare services for personal reasons of the provider. For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child.
You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement.
You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year.
If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication.
The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. These expenses can be claimed as a separate deduction on your Schedule C (Form 1040).
Table 3. 2009 Standard Meal and Snack Rates
|Location of Family Daycare Provider||Breakfast||Lunch|| Dinner||Snack|
|States other than Alaska and Hawaii||$1.17||$2.18||$2.18||$0.65|