Daycare Facility

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 You do not meet this requirement if your application was rejected or your license or other authorization was revoked.

Figuring the deduction. 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 Busi- ness 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. No deduction is allowed for the cost of a basic local telephone line provided to the home.

Tip: 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

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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 2025). If you started or stopped using your home for daycare in 2025, you must prorate the number of hours based on the number of days the home was available for daycare.

Example 1. Rene used the basement at home to operate a daycare business for children. Rene figures the business percentage of the basement as follows.

Square footage of the basement 1,600 = = 50% Square footage of the home 3,200

Rene 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. Rene figures the percentage of time the basement was used for daycare as follows.

Number of hours used for daycare (12 x 5 x 50) 3,000 = = 34.25% Total number of hours in the year (24 x 365) 8,760

Rene can deduct 34.25% of any direct expenses for the basement. However, because Rene’s indirect expenses are for the entire house, Rene can deduct only 17.12% of the indirect expenses. Rene figures the percentage for their indirect expenses as follows.

Business percentage of the basement . . . . . . . . . . . . . 50% Multiplied by: Percentage of time used for daycare . . . . . × 34.25% Percentage for indirect expenses . . . . . . . . . . . . . . . . 17.12%

Rene completes Form 8829, Part I, figuring the percentage of the home used for business, including the percentage of time the basement was used.

In Part II, Rene figures the deductible expenses. Rene uses the following information to complete Part II.

Gross income from the 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

Rene enters a tentative profit, $25,000, on line 8. (This figure is the same as the amount on line 29 of Schedule C (Form 1040)).

The expenses paid for rent and utilities relate to the entire home. Therefore, Rene enters the amount paid for rent on line 19, column (b), and the amount paid for utilities on line 21, column (b). Rene shows the total of these expenses on line 23, column (b). For line 24, Rene multiplies the amount on line 23, column (b), by the percentage on line 7 and enters the result, $1,584.

Rene paid $500 to have the basement painted. The painting is a direct expense. However, because the basement was not used exclusively for daycare, Rene must multiply $500 by the percentage of time the basement was

used for daycare (34.25% – line 6). Rene then enters $171 (34.25% × $500) on line 20, column (a). Rene then adds line 23, column (a), and line 24 and enters $1,755 ($171 + $1,584) on line 26. This is less than Rene’s deduction limit (line 15), so Rene can deduct the entire amount. Rene follows the instructions to complete the rest of Part II and enters $1,755 on lines 34 and 36. Then Rene carries the $1,755 to line 30 of Schedule C (Form 1040).

Example 2. Assume the same facts as in Example 1 except that Rene also has another room that was available each business day for children to take naps in. Although Rene did not keep a record of the number of hours the room was 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 the home. In figuring Rene’s expenses, 34.25% of any direct expenses for the basement and room are deductible. In addition, 20.55% (34.25% × 60%) of the indirect expenses are deductible.

Example 3. Assume the same facts as in Example 1 except that Rene stopped using the home for a daycare facility on June 24, 2025. Rene 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, Rene’s family could still use the basement. Rene figures the percentage of time the basement was used for business as follows.

Number of hours used for daycare (12 x 5 x 25) 1,500 Total number of hours during period used (24 x = = 35.71% 4,200 175)

Rene can deduct 35.71% of any direct expenses for the basement. However, because the indirect expenses are for the entire house, Rene can deduct only 17.86% of the indirect expenses. Rene then figures the percentage for the indirect expenses as follows.

Business percentage of the basement . . . . . . . . . . . . . 50% Multiplied by: Percentage of time used for daycare . . . . . × 35.71% Percentage for indirect expenses . . . . . . . . . . . . . . . . 17.86%

Meals. 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 con- sumed by your employees. For more information on meals that meet these requirements, see Meals in chapter 2 of Pub. 15-B.

If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family’s food costs.

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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 Information, reporting a payment from the sponsor.

Standard meal and snack rates. 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:

• A family daycare provider is a person engaged in the business of providing family daycare;

• Family daycare is childcare provided to eligible children in the home of the family daycare provider. The care must be nonmedical, not involve a transfer of legal custody, and generally last less than 24 hours each day; and

• Eligible children are minor children receiving family daycare in the home of the family daycare provider. Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Eligible children do not include children who receive daycare services for personal reasons of the provider. For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child.

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 Ta- ble 3. 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 nonfood 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).

Table 3.

Standard Meal and Snack Rates ¹