Direct & Indirect Expenses for Daycare Providers, for use of a Home where there is Exclusive use AND Regular Use - as well as non-deductible use

[dhuber24]

My home is 2,000 sq ft. Of that, 800 sq ft is for EXCLUSIVE USE in daycare (never used for personal), 700 sq ft is for REGULAR BUSINESS USE in daycare, and 500 sq ft is NEVER used for business. My Time % is 36%.

I'm having a hard time finding the rules for how Direct and Indirect expenses are applied to Exclusive uses and Regular uses in the same building.

Do I disregard all T/S calculations for any expense that is directly associated to the EXCLUSIVE USE of the home? and I only apply the calculations to the Direct and Indirect expenses associated with the REGULAR USE of the home?

The question:

[ShirlynW]

The deduction for home office use of a portion of a residence for a daycare is allowed only if a portion is exclusively used on a regular basis for business purposes. You said that the total square footage of your home is 2000 sq. ft., and 800 sq. ft. is used exclusively for the daycare. You use this area only for the daycare. So, this area is used 100% of time for the daycare. Enter your the expenses separately. To enter your daycare as a home office please follow the steps below:

1. Sign in TurboTax online.
2. Wages & Income > Self-employment income and expenses > Edit
3. On the screen, “Your 2022 self-employment work summary’,” Edit > Daycare 
4. Continue entering your income and expenses.
5. On the screen, “Home office summary,” > Edit
6. Continue answering the questions.
7. On the screen, “What percentage of work of Daycare was done,” enter 100.
8. Enter "800" square footage for the office and "2000" for the entire house.
9. Continue with the interview.

[dhuber24]

Thanks for the reply, but what about the other 700 sq ft that I use Regularly in my business, but not exclusively?

[SantinoD · Accepted solution]

You can include that area of the house that is used regularly for Daycare but not exclusively.  

But you have to meet these requirements:

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.

 • 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.

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 2022). If you started or stopped using your home for daycare in 2022, you must prorate the number of hours based on the number of days the home was available for daycare. 

If you qualify, you would have to enter two home offices in TurboTax. One home office is the area that is used exclusively for business and the other home office will be the portion that is only used regularly but not exclusively.

1. Sign in TurboTax online.
2. Wages & Income > Self-employment income and expenses > Edit/review
3. On the screen, “Your 2022 self-employment work summary’,” Edit/review > Daycare 
4. Continue entering your income and expenses.
5. On the screen, “Home office summary,” > Edit
6. Then click on "add another home office" to add the area of the house info for the section used regularly but not exclusively.

Once you have figured out the percentage of use for the area that is not exclusively used for business you can proceed to enter the 2nd home office. This is how you will answer this question:

Continue through the program to enter the info on the second portion of the home office.

@dhuber24