First you have to measure the area used for daycare in the home. You divide that number by the square footage of the entire home. If you also use the space for something else when not a daycare you must figure the business use time divided by the total time.
So if you use 50% of the home for daycare 50% of the time then only 25% of the expenses would be deductible if using actual expenses.
If 300 sqft or less is used for daycare then you can use the simplified method to figure the deduction. That is multiplying $5 x the sqft. So if you use 200 sqft for daycare 50% of the time then $2.50 x 200 = $500 deduction.
Also remember:
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 You do not meet this requirement if your application was rejected or your license or other authorization was revoked.
Here is a link to the Publication that explains how to determine the business use of your home for day care.
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