The IRS has special rules for a home-based daycare providers. The space does NOT need to be used exclusively for daycare; this is a requirement for home offices, but not daycare. If the daycare space in your home is used 40% of the time for daycare and 60% for personal use, you will be able to take 40% of the costs for that specific area as a business expense. Costs include utilities, insurance, mortgage interest, property taxes, etc., and you will prorate them based on the area used for daycare.
For example, if your home is 2,000 square feet and you use 1,000 feet for your daycare, your starting point will be 50% of your utilities, insurance, mortgage interest, etc. Once that 50% amount is calculated, reduce it again by the percentage of time those areas are used for personal purposes. (Alternately, you can choose a simplified calculation based on a flat rate per square foot.)
TurboTax will walk you through this process and do the calculations for you. The program will ask about specific expenses that may be includable in the Business Use of Your Home deduction. Be sure to indicate that you have a Day Care, so the special rules will apply.
More information can be found in this IRS publication: Business Use of Home
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