You will include your expenses for the room/rooms that you use strictly for daycare purposes. Most of the time, when deducting home office expenses, the room has to be exclusively used for work purposes only. However, the exclusive-use test does not apply if you use part of your house to provide day care services for children, the elderly or handicapped individuals. If you care for children in your home between 7 a.m. and 6 p.m. each day, for example, you can use that part of the house for personal activities the rest of the time and still claim business deductions. To qualify for the tax break, your daycare business must meet any applicable state and local licensing requirements.
Special rules apply if you qualify for home office deductions under the day care exception to the exclusive-use test.
- Your business-use percentage must be reduced because the space is available for personal use part of the time.
- To do that, you compare the number of hours the child care business is operated, including preparation and cleanup time, to the total number of hours in the year (8,760).
Assume you use 40% of your house for a daycare business that operates 12 hours a day, five days a week for 50 weeks of the year.
- 12 hours x 5 days x 50 weeks = 3,000 hours per year.
- 3,000 hours ÷ 8,760 total hours in the year = 0.34 (34%) of available hours.
- 34% of available hours x 40% of the house used for business = 13.6% business write-off percentage.
