Figuring the Deduction — 2025 Publ 587 (PDF)

After you determine that you meet the tests under Qualify- ing for a Deduction , you can begin to figure how much you can deduct. When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method.

Electing to use the simplified method. The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. You choose whether or not to figure your deduction using the simplified method each tax year. See Using the Simplified Method, later.

Using Actual Expenses

If you do not or cannot elect to use the simplified method for a home, you will figure your deduction for that home using your actual expenses. You will also need to figure the percentage of your home used for business and the limit on the deduction.

If you are a partner or you use your home in your farming business and you file Schedule F (Form 1040), you can use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication, to help you figure your deduction. If you use your home in a trade or business and you file Schedule C (Form 1040), you will use Form 8829 to figure your deduction.

Part-year use. You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction.

Expenses related to tax-exempt income. Generally, you cannot deduct expenses that are related to tax-exempt allowances. However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. No deduction is allowed for other expenses related to the tax-exempt allowance.

If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing.

Actual Expenses

You must divide the expenses of operating your home between personal and business use. The part of a home operating expense you can use to figure your deduction depends on both of the following.

Whether the expense is direct, indirect, or unrelated.
The percentage of your home used for business.

Table 1 describes the types of expenses you may have and the extent to which they are deductible.

Table 1. Types of Expenses

Expense Description Deductibility

*Subject to the deduction limit, discussed later.

Tip: Form 8829 and the Worksheet To Figure the De- duction for Business Use of Your Home have separate col- umns for direct and indirect expenses.

Certain expenses are deductible to the extent they would have been deductible as an itemized deduction on your Schedule A or, if claiming the standard deduction, would have increased your standard deduction had you not used your home for business. If the expense is indirect, use the business percentage of these expenses to figure how much to include in your total business-use-of-the-home deduction. If you are itemizing your deductions on Schedule A (Form 1040), these expenses include the following.

Real estate taxes.
Home mortgage interest.
Casualty losses attributable to a federally declared disaster.

Direct Expenses only for the business part of your home.

Examples: Painting or repairs only in the area used for business.

Indirect Expenses for keeping up and running your entire home.

Examples: Insurance, utilities, and general repairs.

Unrelated Expenses only for the parts of your home not used for business.

Examples: Lawn care or painting a room not used for business.

Deductible in full.*

Exception: May be only partially deductible in a daycare facility. See Daycare Facility, later.

Deductible based on the percentage of your home used for business.*

Not deductible.

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If you are claiming the standard deduction, these expenses only include net qualified disaster losses that increase your standard deduction.

See the Instructions for the Worksheet To Figure the Deduction for Business Use of Your Home , later in this publication, or the Instructions for Form 8829 for more in- formation about figuring and deducting the business part of these otherwise allowable expenses. For more information about deducting real estate taxes, see Pub. 530. For more information about deducting home mortgage interest, see Pub. 936. For more information about deducting casualty losses, see Pub. 547.

Other expenses are deductible only if you use your home for business. If the expense is indirect, use the business percentage of these expenses to figure how much to include in your total business-use-of-the-home deduction. These expenses generally include (but are not limited to) the following.

Casualty losses not attributable to a federally declared disaster.
Depreciation (discussed under Depreciating Your Home, later).
Insurance.
Rent paid for the use of property you do not own but use in your trade or business.
Repairs.
Security system.
Utilities and services. (But see Telephone, later, for different rules that apply to telephone expenses.)

Insurance. You can deduct the cost of insurance that covers the business part of your home. However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. You can deduct the business percentage of the part that applies to the following year in that year.

Rent. If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. To figure your deduction, multiply your rent payments by the percentage of your home used for business.

If you own your home, you cannot deduct the fair rental value of your home. However, see Depreciating Your Home , later.

Repairs. The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. For example, a furnace repair benefits the entire home. If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair.

Repairs keep your home in good working order over its useful life. Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. However, repairs are

sometimes treated as a permanent improvement and are not deductible. See Permanent improvements , later, under Depreciating Your Home .

Security system. If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. You can also take a depreciation deduction for the part of the cost of the security system relating to the business use of your home.

Utilities and services. Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. However, if you use part of your home for business, you can deduct the business part of these expenses. Generally, the business percentage for utilities is the same as the percentage of your home used for business.

Telephone. The basic local telephone service charge, including taxes, for the first telephone landline into your home is a nondeductible personal expense. However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Do not include these expenses as a cost of using your home for business. Deduct these charges separately on the appropriate form or schedule. For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home).

Depreciating Your Home

If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Depreciation is an allowance for the wear and tear on the part of your home used for business. You cannot depreciate the cost or value of the land. You recover its cost when you sell or otherwise dispose of the property.

Before you figure your depreciation deduction, you need to know the following information.

The month and year you started using your home for business.
The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business.
The cost of any improvements before and after you began using the property for business.
The percentage of your home used for business. See Business Percentage, later.

Adjusted basis defined. The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. For a discussion of adjusted basis, see Pub. 551.

Permanent improvements. A permanent improvement increases the value of property, adds to its life, or

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gives it a new or different use. Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling.

You must carefully distinguish between repairs and improvements. See Repairs, earlier, under Actual Expenses . You must also keep accurate records of these expenses. These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement.

Example. You buy an older home and fix up two rooms as a beauty salon. You patch the plaster on the ceilings and walls, paint, repair the floor, install an outside door, and install new wiring, plumbing, and other equipment. Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. However, because the work gives your property a new use, the entire remodeling job is a permanent improvement and its cost is added to the basis of the property. You cannot deduct any portion of it as a repair expense.

Adjusting for depreciation deducted in earlier years. Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. If you deducted less depreciation than you could have under the method you selected, decrease the basis by the amount you could have deducted under that method. If you did not deduct any depreciation, decrease the basis by the amount you could have deducted.

If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year.

If you deducted the incorrect amount of depreciation, see Pub. 946.

Fair market value defined. The fair market value of your home is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Sales of similar property, on or about the date you begin using your home for business, may be helpful in determining the property’s fair market value.

Figuring the depreciation deduction for the current year. If you began using your home for business before 2025, continue to use the same depreciation method you used in past tax years. However, if you figured your deduction for business use of the home using the simplified method in a prior year, you will need to use the optional depreciation table for modified accelerated cost recovery system (MACRS) property. See Pub. 946 for the optional depreciation tables. For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I.R.B. 478, available at IRS.gov/irb/ 2013-06_IRB#RP-2013-13 . If you began using your home for business for the first time in 2025, depreciate the business part as

nonresidential real property under MACRS. Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. For more information on MACRS and other methods of depreciation, see Pub. 946.

To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following.

The adjusted basis of your home (excluding land) on the date you began using your home for business.
The fair market value of your home (excluding land) on the date you began using your home for business.

Depreciation table. If 2025 was the first year you used your home for business, you can figure your 2025 depreciation for the business part of your home by using the appropriate percentage from the following table.

Month First Used for Business Percentage To Use

1 2.461%

2 2.247%

3 2.033%

4 1.819%

5 1.605%

6 1.391%

7 1.177%

8 0.963%

9 0.749%

10 0.535%

11 0.321%

12 0.107%

Multiply the depreciable basis of the business part of your home by the percentage from the table for the first month you use your home for business. See Pub. 946 for the percentages for the remaining tax years of the recovery period.

Example. In May, Frankie began to use one room at home exclusively and regularly to meet clients. This room is 8% of the square footage of the home. Frankie bought the home in 2014 for $125,000. Frankie determined from the property tax records that the adjusted basis in the house (exclusive of land) is $115,000. In May, the house had a fair market value of $165,000. Frankie multiplies the adjusted basis of $115,000 (which is less than the fair market value) by 8%. The result is $9,200, the depreciable basis for the business part of the house.

Frankie files a tax return based on the calendar year. May is the fifth month of this tax year. Frankie multiplies the depreciable basis of $9,200 by 1.605% (0.01605), the percentage from the table for the fifth month. Frankie’s depreciation deduction is $147.66.

Table 2.

MACRS Percentage Table for 39-Year Nonresidential Real Property

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Depreciating permanent improvements. Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Depreciate these costs as part of the cost of your home, as explained earlier. The costs of improvements made after you begin using your home for business (that affect the business part of your home, such as a new roof) are depreciated separately. Multiply the cost of the improvement by the business-use percentage and depreciate the result over the recovery period that would apply to your home if you began using it for business at the same time as the improvement. For improvements made this year, the recovery period is 39 years. For the percentage to use for the first year, see Table 2. For more information on recovery periods, see Pub. 946.

Business Percentage

To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Use the resulting percentage to figure the business part of the expenses for operating your entire home.

You can use any reasonable method to determine the business percentage. The following are two commonly used methods for figuring the percentage.

Divide the area (length multiplied by the width) used for business by the total area of your home.
If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home.

Example 1.

Your office is 240 square feet (12 feet × 20 feet).
Your home is 1,200 square feet.
Your office is 20% (240 ÷ 1,200) of the total area of your home.
Your business percentage is 20%.

Example 2.

You use one room in your home for business.
Your home has 10 rooms, all about equal size.
Your office is 10% (1 ÷ 10) of the total area of your home.
Your business percentage is 10%.

Tip: Use lines 1–7 of Form 8829 or lines 1–3 on the Worksheet To Figure the Deduction for Business Use of Your Home (near the end of this publication) to figure your business percentage.

Deduction Limit

If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home.

If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited.

Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last) that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following.

The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty losses attributable to a federally declared disaster if you itemize deductions on Schedule A (Form 1040) or net qualified disaster losses if you claim the standard deduction).
The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment) but not to the use of the home itself.

If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax.

Carryover of unallowed expenses. If your business expenses related to the home are greater than the current year’s limit, you can carry over the excess to the next year in which you use actual expenses. They are subject to the deduction limit for that year, whether or not you live in the same home during that year.

Figuring the deduction limit and carryover. If you are a partner or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829.

Example. You meet the requirements for deducting expenses for the business use of your home. You use 20% of your home for business. You are itemizing your deductions on Schedule A (Form 1040) and your home mortgage interest and total state and local taxes would not be limited on your Schedule A if you had not used your home for business. In 2025, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order.

Gross income from business . . . . . . . . . . . . . . . . . . . $6,000 Minus:

Deductible mortgage interest and real estate taxes (20%) . . . . . . . . . . . . . . . . . 3,000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 Deduction limit . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000 Minus other expenses allocable to business use of home:

Maintenance, insurance, and utilities (20%) . . . . . . . . 800 Depreciation allowed (20%) . . . . . . . . . . . . . . . . . 200 Other expenses up to the deduction limit . . . . . . . . . . . $1,000 Depreciation carryover to 2026 ($1,600 − $200) (subject to deduction limit in 2026) . . . . . . . . . . . . . . . $1,400

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You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). You can also deduct all of your business expenses not related to the use of your home ($2,000). Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. You can carry over the $1,400 balance and add it to your depreciation for 2026, subject to your deduction limit in 2026.

More than one place of business. If part of the gross income from your trade or business is from the business use of part of your home and part is from a place other than your home, you must determine the part of your gross income from the business use of your home before you figure the deduction limit. In making this determination, consider the time you spend at each location, the business investment in each location, and any other relevant facts and circumstances.

Tip: If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. For more information on transportation costs, see Pub. 463.

Using the Simplified Method

The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. The area you use to figure your deduction is limited to 300 square feet. See Simplified Amount , later, for information about figuring the amount of the deduction.

For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I.R.B. 478, available at IRS.gov/irb/2013-06_IRB#RP-2013-13 .

Actual expenses and depreciation of your home. If you elect to use the simplified method, you cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation.

More information. For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I.R.B. 478, available at IRS.gov/irb/2013-06_IRB#RP-2013-13 . See Pub. 946 for the optional depreciation tables.

Tip: Although you cannot deduct any depreciation or section 179 expense for the portion of your home used for a qualified business use, you may still claim depreciation or the section 179 expense deduction on other assets used in the business (for example, furniture and equipment).

Expenses deductible without regard to business use. When using the simplified method, treat as personal expenses your mortgage interest, real estate taxes, and casualty losses. If you also rent part of your home, you must still allocate these expenses between rental use and personal use (for this purpose, personal use includes business use reported using the simplified method).

No deduction of carryover of actual expenses. If you used actual expenses to figure your deduction for business use of the home in a prior year and your deduction was limited, you cannot deduct the disallowed amount carried over from the prior year during a year you figure your deduction using the simplified method. Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction.

Electing the Simplified Method

You choose whether or not to figure your deduction using the simplified method each tax year. Make the election for a home by using the simplified method to figure the deduction for the qualified business use of that home on a timely filed, original federal income tax return. An election for a tax year, once made, is irrevocable. A change from using the simplified method in one year to actual expenses in a succeeding tax year, or vice versa, is not a change in method of accounting and does not require the consent of the Commissioner.

Shared use. If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you makes your own election.

More than one qualified business use. If you conduct more than one business that qualifies for this deduction in your home, your election to use the simplified method applies to all your qualified business uses of that home.

More than one home. If you used more than one home in your business during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. You must figure the deduction for any other home using actual expenses.

Simplified Amount

Your deduction for the qualified business use of a home is the sum of each amount you figure for a separate qualified business use of your home. To figure your deduction for the business use of a home using the simplified method,

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you will need to know the following information for each qualified business use of the home.

The allowable area of your home used in conducting the business. If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month.
The gross income from the business use of your home.
The amount of the business expenses that are not related to the use of your home.
If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will need to know the percentage of time that part of your home is used for daycare.

To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these three steps.

Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis). See Allowable area and Space used regularly for daycare, later.
Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home. See Gross income limitation , later.
Take the smaller of the amounts from (1) and (2). This is the amount you can deduct for this qualified business use of your home using the simplified method.

If you are a partner or you use your home in your farming business and file Schedule F (Form 1040), you can use the Simplified Method Worksheet, near the end of this publication, to help you figure your deduction. If you use your home in a trade or business and you file Schedule C (Form 1040), you will use the Simplified Method Worksheet in your Instructions for Schedule C to figure your deduction.

Allowable area. In most cases, the allowable area is the smaller of the actual area (in square feet) of your home used in conducting the business and 300 square feet. Your allowable area may be smaller if you conducted the business as a qualified joint venture with your spouse, the area used by the business was shared with another qualified business use, you used the home for the business for only part of the year, or the area used by the business changed during the year. You can use the Area Adjust- ment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use.

Area used by a qualified joint venture. If the qualified business use of the home is also a qualified joint venture, you and your spouse will figure the deduction for the business use separately. Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Then each spouse will figure the allowable area separately. For more information about qualified joint ventures, see Quali- fied Joint Venture in the Instructions for Schedule C.

Shared use. If you share your home with someone else who uses the home to conduct business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. You must allocate the shared space between you and the other person in a reasonable manner.

Example. Lindsey and Tracy are roommates. Lindsey uses 300 square feet of their home for a qualified business use. Tracy uses 200 square feet of their home for a separate qualified business use. Lindsey and Tracy both share 100 square feet for their respective qualified businesses in their mutual home. In addition to the portion that they do not share, Lindsey and Tracy can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. If divided evenly, Lindsey could claim 250 square feet using the simplified method and Tracy could claim 150 square feet.

More than one qualified business use. If you conduct more than one business qualifying for the deduction, you are limited to a maximum of 300 square feet for all of the businesses. Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. However, do not allocate more square feet to a qualified business use than you actually use for that business.

Rental use. The simplified method does not apply to rental use. A rental use that qualifies for the deduction must be figured using actual expenses. If the rental use and a qualified business use share the same area, you will have to allocate the actual area used between the two uses. You cannot use the same area to figure a deduction for the qualified business use as you are using to figure the deduction for the rental use.

Part-year use or area changes (for simplified method only). If your qualified business use was for a portion of the year (for example, a seasonal business, a business that begins during the year, or you moved during the year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any 1 month. Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month.

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Example 1. Jay owns a home and files federal income taxes on a calendar year basis. On July 20, Jay began using 420 square feet at the home for a qualified business use. Jay continued to use 420 square feet of the home until the end of the year. The average monthly allowable square footage is 125 square feet, which is figured using 300 square feet for each month, August through December, divided by the number of months in the year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12).

Example 2. Jessie owns a home and files federal income taxes on a calendar year basis. On April 20, Jessie began using 100 square feet of the home for a qualified business use. On August 5, Jessie expanded the area of qualified use to 330 square feet. Jessie continued to use the 330 square feet until the end of the year. The average monthly allowable square footage is 150 square feet, which is figured using 100 square feet for May through July and 300 square feet for August through December, divided by the number of months in the year ((0 + 0 + 0 + 0

100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12).

Example 3. Guadalupe owns a home and files federal income taxes on a calendar year basis. From January 1 through July 16, Guadalupe used 300 square feet of the home for a qualified business use. On July 17, Guadalupe moved to a new home and immediately began using 200 square feet for the same qualified business use. While preparing a 2025 tax return, Guadalupe decided to use the simplified method to deduct the qualified business use of the first home and files Form 8829 to deduct the qualified business use of the second home. The average monthly allowable square footage is 175 square feet, which is figured using 300 square feet for January through July, divided by the number of months in the year ((300 + 300 + 300 + 300 + 300 + 300 + 300 + 0 + 0 + 0 + 0 + 0)/ 12).

Caution: If you moved during the year, your average allowable square footage will generally be less than 300.

Gross income limitation. Your deduction for business use of the home is limited to an amount equal to the gross income derived from the qualified business use of the home reduced by the business deductions that are unrelated to the use of your home. If the business deductions that are unrelated to the use of your home are greater than the gross income derived from the qualified business use of your home, then you cannot take a deduction for this qualified business use of your home.

Business expenses not related to use of the home. These expenses relate to the business activity in the home, but not to the use of the home itself. You can still deduct business expenses that are unrelated to the use of the home. See Where To Deduct, later. Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment.

Space used regularly for daycare. If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate (maximum $5 per square foot)

before figuring your deduction. The reduced rate will equal the prescribed rate times a fraction. The numerator of the fraction is the number of hours that the space was used during the year for daycare and the denominator is the total number of hours during the year that the space was available for all uses. You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate.

Tip: If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to reduce the prescribed rate or complete the Daycare Facility Worksheet.