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IRS.gov Website
Publication 587
taxmap/pubs/p587-002.htm#en_us_publink1000226361

Daycare Facility(p13)

For Use in Tax Year 2013
rule
If you use space in your home on a regular basis for providing daycare, you may be able to claim a deduction 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.
taxmap/pubs/p587-002.htm#en_us_publink1000226362

Figuring the deduction.(p14)

For Use in Tax Year 2013
rule
If you elect to use the simplified method for your home, figure your deduction as described earlier in Using the Simplified Method under Figuring the Deduction.
If you are figuring your deduction using actual expenses and you regularly use part of your home for daycare, figure what part is used for daycare, as explained in Business Percentage, earlier, under Figuring the Deduction. If you also 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.
Deposit
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 2013). If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare.
taxmap/pubs/p587-002.htm#en_us_publink1000226364

Example 1.(p14)

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
3,200
=50%
     
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
8,760
=34.25%
     
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 basement50%
Multiplied by: Percentage of time used for daycare× 34.25%
Percentage for indirect expenses17.13%
Mary completes Form 8829, Part I, figuring 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
Rent$8,400
Utilities$850
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 (Form 1040).)
The expenses she paid for rent and utilities relate to her entire home. Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). She shows the total of these expenses on line 22, column (b). For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585.
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 follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. She then carries the $1,756 to line 30 of her Schedule C (Form 1040).
taxmap/pubs/p587-002.htm#en_us_publink1000226370

Example 2.(p14)

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/p587-002.htm#en_us_publink1000226371

Example 3.(p14)

Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. 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
4,200
=35.71%
     
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 basement50%
Multiplied by: Percentage of time used for daycare× 35.71%
Percentage for indirect expenses17.86%
taxmap/pubs/p587-002.htm#en_us_publink1000226374

Meals.(p15)

For Use in Tax Year 2013
rule
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 Care Food 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 (Form 1040). If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). 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-MISC, Miscellaneous Income, reporting a payment from the sponsor.
taxmap/pubs/p587-002.htm#en_us_publink1000226375
Standard meal and snack rates.(p15)
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:
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).

taxmap/pubs/p587-002.htm#en_us_publink1000226376

Table 3. Standard Meal and Snack Rates1

Location of Family Daycare ProviderBreakfastLunch DinnerSnack
States other than Alaska and Hawaii$1.27$2.38$2.38$0.71
Alaska$2.03$3.86$3.86$1.15
Hawaii$1.48$2.79$2.79$0.83
1 The applicable rates for 2013 are the Child and Adult Care Food Program reimbursement rates in effect on December 31, 2012.