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Free file state return only Publication 587 - Main Content Table of Contents Qualifying for a DeductionExclusive Use Regular Use Trade or Business Use Principal Place of Business Place To Meet Patients, Clients, or Customers Separate Structure Figuring the DeductionUsing Actual Expenses Using the Simplified Method Daycare Facility Standard meal and snack rates. Free file state return only Sale or Exchange of Your HomeGain on Sale Depreciation Basis Adjustment Reporting the Sale More Information Business Furniture and EquipmentListed Property Property Bought for Business Use Personal Property Converted to Business Use Recordkeeping Where To DeductSelf-Employed Persons Employees Partners How To Get Tax HelpLow Income Taxpayer Clinics Worksheet To Figure the Deduction for Business Use of Your HomeInstructions for the Worksheet Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Instructions for the Simplified Method Worksheet Instructions for the Daycare Facility Worksheet Instructions for the Area Adjustment Worksheet Qualifying for a Deduction Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. Free file state return only However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Free file state return only Even then, the deductible amount of these types of expenses may be limited. Free file state return only Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Free file state return only To qualify to deduct expenses for business use of your home, you must use part of your home: Exclusively and regularly as your principal place of business (defined later), Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, In the case of a separate structure which is not attached to your home, in connection with your trade or business, On a regular basis for certain storage use (see Storage of inventory or product samples , later), For rental use (see Publication 527), or As a daycare facility (see Daycare Facility , later). Free file state return only Additional tests for employee use. Free file state return only   If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. Free file state return only You must meet the tests discussed earlier plus: Your business use must be for the convenience of your employer, and You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. Free file state return only If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Free file state return only Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Free file state return only The area used for business can be a room or other separately identifiable space. Free file state return only The space does not need to be marked off by a permanent partition. Free file state return only You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Free file state return only Example. Free file state return only You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Free file state return only Your family also uses the den for recreation. Free file state return only The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Free file state return only Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Free file state return only You use part of your home for the storage of inventory or product samples (discussed next). Free file state return only You use part of your home as a daycare facility, discussed later under Daycare Facility . Free file state return only Note. Free file state return only With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Free file state return only Storage of inventory or product samples. Free file state return only    If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. Free file state return only However, you must meet all the following tests. Free file state return only You sell products at wholesale or retail as your trade or business. Free file state return only You keep the inventory or product samples in your home for use in your trade or business. Free file state return only Your home is the only fixed location of your trade or business. Free file state return only You use the storage space on a regular basis. Free file state return only The space you use is a separately identifiable space suitable for storage. Free file state return only Example. Free file state return only Your home is the only fixed location of your business of selling mechanics' tools at retail. Free file state return only You regularly use half of your basement for storage of inventory and product samples. Free file state return only You sometimes use the area for personal purposes. Free file state return only The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Free file state return only Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Free file state return only Incidental or occasional business use is not regular use. Free file state return only You must consider all facts and circumstances in determining whether your use is on a regular basis. Free file state return only Trade or Business Use To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. Free file state return only If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. Free file state return only Example. Free file state return only You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. Free file state return only You do not make investments as a broker or dealer. Free file state return only So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Free file state return only Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Free file state return only To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. Free file state return only To determine whether your home is your principal place of business, you must consider: The relative importance of the activities performed at each place where you conduct business, and The amount of time spent at each place where you conduct business. Free file state return only Your home office will qualify as your principal place of business if you meet the following requirements. Free file state return only You use it exclusively and regularly for administrative or management activities of your trade or business. Free file state return only You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Free file state return only If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Free file state return only However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Free file state return only Administrative or management activities. Free file state return only   There are many activities that are administrative or managerial in nature. Free file state return only The following are a few examples. Free file state return only Billing customers, clients, or patients. Free file state return only Keeping books and records. Free file state return only Ordering supplies. Free file state return only Setting up appointments. Free file state return only Forwarding orders or writing reports. Free file state return only Administrative or management activities performed at other locations. Free file state return only   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Free file state return only You have others conduct your administrative or management activities at locations other than your home. Free file state return only (For example, another company does your billing from its place of business. Free file state return only ) You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. Free file state return only You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Free file state return only You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Free file state return only (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Free file state return only ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Free file state return only Please click here for the text description of the image. Free file state return only Can you deduct business use of the home expenses? Example 1. Free file state return only John is a self-employed plumber. Free file state return only Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Free file state return only He has a small office in his home that he uses exclusively and regularly for the administrative or management activities of his business, such as phoning customers, ordering supplies, and keeping his books. Free file state return only John writes up estimates and records of work completed at his customers' premises. Free file state return only He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Free file state return only John does not do his own billing. Free file state return only He uses a local bookkeeping service to bill his customers. Free file state return only John's home office qualifies as his principal place of business for deducting expenses for its use. Free file state return only He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. Free file state return only His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Free file state return only He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Free file state return only Example 2. Free file state return only Pamela is a self-employed sales representative for several different product lines. Free file state return only She has an office in her home that she uses exclusively and regularly to set up appointments and write up orders and other reports for the companies whose products she sells. Free file state return only She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Free file state return only Pamela's business is selling products to customers at various locations throughout her territory. Free file state return only To make these sales, she regularly visits customers to explain the available products and take orders. Free file state return only Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Free file state return only She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Free file state return only The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. Free file state return only She meets all the qualifications, including principal place of business, so she can deduct expenses (subject to certain limitations, explained later) for the business use of her home. Free file state return only Example 3. Free file state return only Paul is a self-employed anesthesiologist. Free file state return only He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Free file state return only One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Free file state return only Paul very rarely uses the office the hospital provides. Free file state return only He uses a room in his home that he has converted to an office. Free file state return only He uses this room exclusively and regularly to conduct all the following activities. Free file state return only Contacting patients, surgeons, and hospitals regarding scheduling. Free file state return only Preparing for treatments and presentations. Free file state return only Maintaining billing records and patient logs. Free file state return only Satisfying continuing medical education requirements. Free file state return only Reading medical journals and books. Free file state return only Paul's home office qualifies as his principal place of business for deducting expenses for its use. Free file state return only He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. Free file state return only His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. Free file state return only His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. Free file state return only He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Free file state return only Example 4. Free file state return only Kathleen is employed as a teacher. Free file state return only She is required to teach and meet with students at the school and to grade papers and tests. Free file state return only The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. Free file state return only The school does not require her to work at home. Free file state return only Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Free file state return only She uses this home office exclusively and regularly for the administrative duties of her teaching job. Free file state return only Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Free file state return only Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home. Free file state return only More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Free file state return only Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. Free file state return only You must use the home office exclusively and regularly for one or more of the following purposes. Free file state return only As the principal place of business for one or more of your trades or businesses. Free file state return only As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses. Free file state return only If your home office is a separate structure, in connection with one or more of your trades or businesses. Free file state return only You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Free file state return only e. Free file state return only , personal) activities. Free file state return only If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Free file state return only See Rental to employer , later, if you rent part of your home to your employer. Free file state return only Example. Free file state return only Tracy White is employed as a teacher. Free file state return only Her principal place of work is the school, which provides her office space to do her school work. Free file state return only She also has a mail order jewelry business. Free file state return only All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Free file state return only If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Free file state return only If Tracy also uses the office for work related to her teaching, she must meet the exclusive use test for both businesses to qualify for the deduction. Free file state return only As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Free file state return only She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity. Free file state return only Place To Meet Patients, Clients, or Customers If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests. Free file state return only You physically meet with patients, clients, or customers on your premises. Free file state return only Their use of your home is substantial and integral to the conduct of your business. Free file state return only Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Free file state return only Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Free file state return only The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business. Free file state return only Example. Free file state return only June Quill, a self-employed attorney, works 3 days a week in her city office. Free file state return only She works 2 days a week in her home office used only for business. Free file state return only She regularly meets clients there. Free file state return only Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Free file state return only Separate Structure You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Free file state return only The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Free file state return only Example. Free file state return only John Berry operates a floral shop in town. Free file state return only He grows the plants for his shop in a greenhouse behind his home. Free file state return only He uses the greenhouse exclusively and regularly in his business, so he can deduct the expenses for its use, subject to certain limitations, explained later. Free file state return only Figuring the Deduction After you determine that you meet the tests under Qualifying for a Deduction , you can begin to figure how much you can deduct. Free file state return only 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. Free file state return only Electing to use the simplified method. Free file state return only   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Free file state return only You choose whether or not to figure your deduction using the simplified method each taxable year. Free file state return only See Using the Simplified Method , later. Free file state return only Rental to employer. Free file state return only   If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. Free file state return only You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Free file state return only However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home (or use the simplified method as an alternative to deducting these actual expenses) in performing services for your employer. Free file state return only 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. Free file state return only You will also need to figure the percentage of your home used for business and the limit on the deduction. Free file state return only If you are an employee or 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. Free file state return only 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. Free file state return only Part-year use. Free file state return only   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. Free file state return only 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. Free file state return only Expenses related to tax-exempt income. Free file state return only   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Free file state return only 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. Free file state return only No deduction is allowed for other expenses related to the tax-exempt allowance. Free file state return only   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. Free file state return only Actual Expenses You must divide the expenses of operating your home between personal and business use. Free file state return only The part of a home operating expense you can use to figure your deduction depends on both of the following. Free file state return only Whether the expense is direct, indirect, or unrelated. Free file state return only The percentage of your home used for business. Free file state return only Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Free file state return only Table 1. Free file state return only Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Free file state return only Deductible in full. Free file state return only *   Examples:  Painting or repairs  only in the area  used for business. Free file state return only Exception: May be only partially  deductible in a daycare facility. Free file state return only See Daycare Facility , later. Free file state return only Indirect Expenses for  keeping up and running your  entire home. Free file state return only Deductible based on the percentage of your home used for business. Free file state return only *   Examples:  Insurance, utilities, and  general repairs. Free file state return only   Unrelated Expenses only for  the parts of your  home not used  for business. Free file state return only Not deductible. Free file state return only   Examples:  Lawn care or painting  a room not used  for business. Free file state return only   *Subject to the deduction limit, discussed later. Free file state return only Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Free file state return only Certain expenses are deductible whether or not you use your home for business. Free file state return only If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. Free file state return only These expenses include the following. Free file state return only Real estate taxes. Free file state return only Qualified mortgage insurance premiums. Free file state return only Deductible mortgage interest. Free file state return only Casualty losses. Free file state return only Other expenses are deductible only if you use your home for business. Free file state return only You can use the business percentage of these expenses to figure your total business use of the home deduction. Free file state return only These expenses generally include (but are not limited to) the following. Free file state return only Depreciation (covered under Depreciating Your Home , later). Free file state return only Insurance. Free file state return only Rent paid for the use of property you do not own but use in your trade or business. Free file state return only Repairs. Free file state return only Security system. Free file state return only Utilities and services. Free file state return only Real estate taxes. Free file state return only   To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business. Free file state return only   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Free file state return only Deductible mortgage interest. Free file state return only   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Free file state return only You can include interest on a second mortgage in this computation. Free file state return only If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. Free file state return only For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Free file state return only Qualified mortgage insurance premiums. Free file state return only   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Free file state return only You can include premiums for insurance on a second mortgage in this computation. Free file state return only If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your deduction may be limited. Free file state return only For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Free file state return only Casualty losses. Free file state return only    If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected. Free file state return only A direct expense is the loss on the portion of the property you use only in your business. Free file state return only Use the entire loss to figure the business use of the home deduction. Free file state return only An indirect expense is the loss on property you use for both business and personal purposes. Free file state return only Use only the business portion to figure the deduction. Free file state return only An unrelated expense is the loss on property you do not use in your business. Free file state return only Do not use any of the loss to figure the deduction. Free file state return only Example. Free file state return only You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Free file state return only A storm damages your roof. Free file state return only This is an indirect expense as the roof is part of the whole house and is considered to be used both for business and personal purposes. Free file state return only You would complete Form 4684, Casualties and Thefts, to report your loss. Free file state return only You complete both section A (Personal Use Property) and section B (Business and Income-Producing Property) as your home is used both for business and personal purposes. Free file state return only Since you use 90% of your home for personal purposes, use 90% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 2, 3, 5, and 6 of Form 4684. Free file state return only Since you use 10% of your home for business purposes, use 10% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 20, 21, 23, and 24 of Form 4684. Free file state return only Forms and worksheets to use. Free file state return only   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Free file state return only If you are an employee or 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. Free file state return only You will also need to get Form 4684. Free file state return only More information. Free file state return only   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Free file state return only Insurance. Free file state return only   You can deduct the cost of insurance that covers the business part of your home. Free file state return only 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. Free file state return only You can deduct the business percentage of the part that applies to the following year in that year. Free file state return only Rent. Free file state return only   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. Free file state return only To figure your deduction, multiply your rent payments by the percentage of your home used for business. Free file state return only   If you own your home, you cannot deduct the fair rental value of your home. Free file state return only However, see Depreciating Your Home , later. Free file state return only Repairs. Free file state return only   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Free file state return only For example, a furnace repair benefits the entire home. Free file state return only If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Free file state return only   Repairs keep your home in good working order over its useful life. Free file state return only Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Free file state return only However, repairs are sometimes treated as a permanent improvement and are not deductible. Free file state return only See Permanent improvements , later, under Depreciating Your Home. Free file state return only Security system. Free file state return only   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. Free file state return only You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home. Free file state return only Utilities and services. Free file state return only   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Free file state return only However, if you use part of your home for business, you can deduct the business part of these expenses. Free file state return only Generally, the business percentage for utilities is the same as the percentage of your home used for business. Free file state return only Telephone. Free file state return only   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Free file state return only e. Free file state return only , landline) is a nondeductible personal expense. Free file state return only 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. Free file state return only Do not include these expenses as a cost of using your home for business. Free file state return only Deduct these charges separately on the appropriate form or schedule. Free file state return only 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). Free file state return only Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Free file state return only Depreciation is an allowance for the wear and tear on the part of your home used for business. Free file state return only You cannot depreciate the cost or value of the land. Free file state return only You recover its cost when you sell or otherwise dispose of the property. Free file state return only Before you figure your depreciation deduction, you need to know the following information. Free file state return only The month and year you started using your home for business. Free file state return only The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Free file state return only The cost of any improvements before and after you began using the property for business. Free file state return only The percentage of your home used for business. Free file state return only See Business Percentage , later. Free file state return only Adjusted basis defined. Free file state return only   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. Free file state return only For a discussion of adjusted basis, see Publication 551. Free file state return only Permanent improvements. Free file state return only   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Free file state return only Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Free file state return only    You must carefully distinguish between repairs and improvements. Free file state return only See Repairs , earlier, under Actual Expenses. Free file state return only You also must keep accurate records of these expenses. Free file state return only These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Free file state return only However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Free file state return only Example. Free file state return only You buy an older home and fix up two rooms as a beauty salon. Free file state return only 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. Free file state return only Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Free file state return only 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. Free file state return only You cannot deduct any portion of it as a repair expense. Free file state return only Adjusting for depreciation deducted in earlier years. Free file state return only   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. Free file state return only 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. Free file state return only If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Free file state return only   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. Free file state return only   If you deducted the incorrect amount of depreciation, see Publication 946. Free file state return only Fair market value defined. Free file state return only   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. Free file state return only 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. Free file state return only Figuring the depreciation deduction for the current year. Free file state return only   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Free file state return only   If you began using your home for business for the first time in 2013, depreciate the business part as nonresidential real property under the modified accelerated cost recovery system (MACRS). Free file state return only Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Free file state return only For more information on MACRS and other methods of depreciation, see Publication 946. Free file state return only   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Free file state return only The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Free file state return only The adjusted basis of your home (excluding land) on the date you began using your home for business. Free file state return only The fair market value of your home (excluding land) on the date you began using your home for business. Free file state return only Depreciation table. Free file state return only   If 2013 was the first year you used your home for business, you can figure your 2013 depreciation for the business part of your home by using the appropriate percentage from the following table. Free file state return only Table 2. Free file state return only MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Free file state return only 461% 2 2. Free file state return only 247% 3 2. Free file state return only 033% 4 1. Free file state return only 819% 5 1. Free file state return only 605% 6 1. Free file state return only 391% 7 1. Free file state return only 177% 8 0. Free file state return only 963% 9 0. Free file state return only 749% 10 0. Free file state return only 535% 11 0. Free file state return only 321% 12 0. Free file state return only 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. Free file state return only See Publication 946 for the percentages for the remaining tax years of the recovery period. Free file state return only Example. Free file state return only In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Free file state return only This room is 8% of the square footage of his home. Free file state return only He bought the home in 2003 for $125,000. Free file state return only He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Free file state return only In May, the house had a fair market value of $165,000. Free file state return only He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Free file state return only The result is $9,200, his depreciable basis for the business part of the house. Free file state return only George files his return based on the calendar year. Free file state return only May is the 5th month of his tax year. Free file state return only He multiplies his depreciable basis of $9,200 by 1. Free file state return only 605% (. Free file state return only 01605), the percentage from the table for the 5th month. Free file state return only His depreciation deduction is $147. Free file state return only 66. Free file state return only Depreciating permanent improvements. Free file state return only   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Free file state return only Depreciate these costs as part of the cost of your home as explained earlier. Free file state return only 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. Free file state return only 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. Free file state return only For improvements made this year, the recovery period is 39 years. Free file state return only For the percentage to use for the first year, see Table 2, earlier. Free file state return only For more information on recovery periods, see Publication 946. Free file state return only 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. Free file state return only Use the resulting percentage to figure the business part of the expenses for operating your entire home. Free file state return only You can use any reasonable method to determine the business percentage. Free file state return only The following are two commonly used methods for figuring the percentage. Free file state return only Divide the area (length multiplied by the width) used for business by the total area of your home. Free file state return only 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. Free file state return only Example 1. Free file state return only Your office is 240 square feet (12 feet × 20 feet). Free file state return only Your home is 1,200 square feet. Free file state return only Your office is 20% (240 ÷ 1,200) of the total area of your home. Free file state return only Your business percentage is 20%. Free file state return only Example 2. Free file state return only You use one room in your home for business. Free file state return only Your home has 10 rooms, all about equal size. Free file state return only Your office is 10% (1 ÷ 10) of the total area of your home. Free file state return only Your business percentage is 10%. Free file state return only 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. Free file state return only 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. Free file state return only 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. Free file state return only 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. Free file state return only 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 and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Free file state return only These expenses are discussed in detail under Actual Expenses , earlier. Free file state return only 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. Free file state return only If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Free file state return only Carryover of unallowed expenses. Free file state return only   If your deductions are greater than the current year's limit, you can carry over the excess to the next year in which you use actual expenses. Free file state return only They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Free file state return only Figuring the deduction limit and carryover. Free file state return only   If you are an employee or 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. Free file state return only If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Free file state return only Example. Free file state return only You meet the requirements for deducting expenses for the business use of your home. Free file state return only You use 20% of your home for business. Free file state return only In 2013, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order. Free file state return only    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% = $1,600 allowable, but subject to balance of deduction limit) 200 Other expenses up to the deduction limit $1,000 Depreciation carryover to 2014 ($1,600 − $200) (subject to deduction limit in 2014) $1,400   You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). Free file state return only You also can deduct all of your business expenses not related to the use of your home ($2,000). Free file state return only 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. Free file state return only Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Free file state return only You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Free file state return only More than one place of business. Free file state return only   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. Free file state return only 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. Free file state return only 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. Free file state return only For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Free file state return only Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Free file state return only 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. Free file state return only The area you use to figure your deduction is limited to 300 square feet. Free file state return only See Simplified Amount , later, for information about figuring the amount of the deduction. Free file state return only For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Free file state return only R. Free file state return only B. Free file state return only 478, available at www. Free file state return only irs. Free file state return only gov/irb/2013-06_IRB/ar09. Free file state return only html. Free file state return only Actual expenses and depreciation of your home. Free file state return only   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. Free file state return only 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. Free file state return only The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Free file state return only 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. Free file state return only More information. Free file state return only   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Free file state return only R. Free file state return only B. Free file state return only 478, available at www. Free file state return only irs. Free file state return only gov/irb/2013-06_IRB/ar09. Free file state return only html. Free file state return only See Publication 946 for the optional depreciation tables 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). Free file state return only Expenses deductible without regard to business use. Free file state return only   When using the simplified method, treat as personal expenses those business expenses related to the use of the home that are deductible without regard to whether there is a qualified business use of the home. Free file state return only These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Free file state return only See Where To Deduct , later. Free file state return only 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). Free file state return only No deduction of carryover of actual expenses. Free file state return only   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. Free file state return only Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Free file state return only Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Free file state return only 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. Free file state return only An election for a taxable year, once made, is irrevocable. Free file state return only A change from using the simplified method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting and does not require the consent of the Commissioner. Free file state return only Shared use. Free file state return only   If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you make your own election. Free file state return only More than one qualified business use. Free file state return only   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. Free file state return only More than one home. Free file state return only   If you used more than one home during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. Free file state return only You must figure the deduction for any other home using actual expenses. Free file state return only 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. Free file state return only To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home. Free file state return only The allowable area of your home used in conducting the business. Free file state return only 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. Free file state return only The gross income from the business use of your home. Free file state return only The amount of the business expenses that are not related to the use of your home. Free file state return only 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 also need to know the percentage of time that part of your home is used for daycare. Free file state return only To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Free file state return only 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). Free file state return only See Allowable area and Space used regularly for daycare , later. Free file state return only 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. Free file state return only 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. Free file state return only See Gross income limitation , later. Free file state return only Take the smaller of the amounts from (1) and (2). Free file state return only This is the amount you can deduct for this qualified business use of your home using the simplified method. Free file state return only If you are an employee or 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. Free file state return only 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. Free file state return only Allowable area. Free file state return only   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. Free file state return only 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. Free file state return only You can use the Area Adjustment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use. Free file state return only Area used by a qualified joint venture. Free file state return only   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. Free file state return only Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Free file state return only Then, each spouse will figure the allowable area separately. Free file state return only For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Free file state return only Shared use. Free file state return only   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. Free file state return only You must allocate the shared space between you and the other person in a reasonable manner. Free file state return only Example. Free file state return only Kristin and Lindsey are roommates. Free file state return only Kristin uses 300 square feet of their home for a qualified business use. Free file state return only Lindsey uses 200 square feet of their home for a separate qualified business use. Free file state return only The qualified business uses share 100 square feet. Free file state return only In addition to the portion that they do not share, Kristin and Lindsey can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. Free file state return only If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Free file state return only More than one qualified business use. Free file state return only   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. Free file state return only Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Free file state return only However, do not allocate more square feet to a qualified business use than you actually use for that business. Free file state return only Rental use. Free file state return only   The simplified method does not apply to rental use. Free file state return only A rental use that qualifies for the deduction must be figured using actual expenses. Free file state return only 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. Free file state return only 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. Free file state return only Part-year use or area changes. Free file state return only   If your qualified business use was for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. Free file state return only 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. Free file state return only When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Free file state return only Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Free file state return only Example 1. Free file state return only Andy files his federal income tax return on a calendar year basis. Free file state return only On July 20, he began using 420 square feet of his home for a qualified business use. Free file state return only He continued to use the 420 square feet until the end of the year. Free file state return only His 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 taxable year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12). Free file state return only Example 2. Free file state return only Amy files her federal income tax return on a calendar year basis. Free file state return only On April 20, she began using 100 square feet of her home for a qualified business use. Free file state return only On August 5, she expanded the area of her qualified use to 330 square feet. Free file state return only Amy continued to use the 330 square feet until the end of the year. Free file state return only Her 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 taxable year ((0 + 0 + 0 + 0 + 100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12). Free file state return only Gross income limitation. Free file state return only   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. Free file state return only 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. Free file state return only Business expenses not related to use of the home. Free file state return only   These expenses relate to the business activity in the home, but not to the use of the home itself. Free file state return only You can still deduct business expenses that are unrelated to the use of the home. Free file state return only See Where To Deduct , later. Free file state return only Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Free file state return only Space used regularly for daycare. Free file state return only   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. Free file state return only The reduced rate will equal the prescribed rate times a fraction. Free file state return only 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. Free file state return only You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Free file state return only    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. Free file state return only 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. Free file state return only To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Free file state return only 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. Free file state return only 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. Free file state return only You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Free file state return only Figuring the deduction. Free file state return only   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. Free file state return only    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 Business Percentage , earlier, under Figuring the Deduction. Free file state return only If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Free file state return only   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. Free file state return only 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. Free file state return only You do not have to keep records to show the specific hours the area was used for business. Free file state return only You can use the area occasionally for personal reasons. Free file state return only However, a room you use only occasionally for business does not qualify for the deduction. Free file state return only 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. Free file state return only You can compare the hours of business use in a week with the number of hours in a week (168). Free file state return only Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Free file state return only If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare. Free file state return only Example 1. Free file state return only Mary Lake used her basement to operate a daycare business for children. Free file state return only She figures the business percentage of the basement as follows. Free file state return only Square footage of the basement Square footage of her home = 1,600 3,200 = 50%           She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. Free file state return only During the other 12 hours a day, the family could use the basement. Free file state return only She figures the percentage of time the basement was used for daycare as follows. Free file state return only Number of hours used for daycare (12 x 5 x 50) Total number of hours in the year (24 x 365) = 3,000 8,760 = 34. Free file state return only 25%           Mary can deduct 34. Free file state return only 25% of any direct expenses for the basement. Free file state return only However, because her indirect expenses are for the entire house, she can deduct only 17. Free file state return only 13% of the indirect expenses. Free file state return only She figures the percentage for her indirect expenses as follows. Free file state return only Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Free file state return only 25% Percentage for indirect expenses 17. Free file state return only 13% Mary completes Form 8829, Part I, figuring the percentage of her home used for business, including the percentage of time the basement was used. Free file state return only In Part II, Mary figures her deductible expenses. Free file state return only She uses the following information to complete Part II. Free file state return only Gross income from her 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 Mary enters her tentative profit, $25,000, on line 8. Free file state return only (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Free file state return only ) The expenses she paid for rent and utilities relate to her entire home. Free file state return only Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Free file state return only She shows the total of these expenses on line 22, column (b). Free file state return only For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Free file state return only Mary paid $500 to have the basement painted. Free file state return only The painting is a direct expense. Free file state return only However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34. Free file state return only 25% – line 6). Free file state return only She enters $171 (34. Free file state return only 25% × $500) on line 19, column (a). Free file state return only She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Free file state return only This is less than her deduction limit (line 15), so she can deduct the entire amount. Free file state return only She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Free file state return only She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Free file state return only Example 2. Free file state return only Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Free file state return only Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Free file state return only 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. Free file state return only The basement and room are 60% of the total area of her home. Free file state return only In figuring her expenses, 34. Free file state return only 25% of any direct expenses for the basement and room are deductible. Free file state return only In addition, 20. Free file state return only 55% (34. Free file state return only 25% × 60%) of her indirect expenses are deductible. Free file state return only Example 3. Free file state return only Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Free file state return only She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. Free file state return only During the other 12 hours a day, the family could still use the basement. Free file state return only She figures the percentage of time the basement was used for business as follows. Free file state return only Number of hours used for daycare (12 x 5 x 25) Total number of hours during period used (24 x 175) = 1,500 4,200 = 35. Free file state return only 71%           Mary can deduct 35. Free file state return only 71% of any direct expenses for the basement. Free file state return only However, because her indirect expenses are for the entire house, she can deduct only 17. Free file state return only 86% of the indirect expenses. Free file state return only She figures the percentage for her indirect expenses as follows. Free file state return only Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Free file state return only 71% Percentage for indirect expenses 17. Free file state return only 86% Meals. Free file state return only   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Free file state return only Claim it as a separate deduction on your Schedule C (Form 1040). Free file state return only You can never deduct the cost of food consumed by you or your family. Free file state return only 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 consumed by your employees. Free file state return only However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. Free file state return only For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Free file state return only   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Free file state return only   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. Free file state return only If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Free file state return only If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Free file state return only Do not include payments or expenses for your own children if they are eligible for the program. Free file state return only Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Free file state return only Standard meal and snack rates. Free file state return only   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. Free file state return only For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Free file state return only Family daycare is childcare provided to eligible children in the home of the family daycare provider. Free file state return only The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Free file state return only Eligible children are minor children receiving family daycare in the home of the family daycare provider. Free file state return only 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. Free file state return only Eligible children do not include children who receive daycare services for personal reasons of the provider. Free file state return only For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Free file state return only   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 Table 3, later. Free file state return only 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. Free file state return only 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. Free file state return only   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. Free file state return only 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. Free file state return only 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. Free file state return only   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. Free file state return only 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. Free file state return only This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Free file state return only   The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. Free file state return only These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Free file state return only     Table 3. Free file state return only Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an
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Understanding Your CP211E Notice

We denied your request to extend the time to file your Exempt Organization Return because your Form 8868, Application for Extension of Time To File an Exempt Organization Return, didn't meet one or more of the requirements.


Your request didn’t meet one or more of the requirements:

  • Postmark your request by the previously established due date.
  • Have your request signed by an authorized person.
  • Deposit estimated tax due by the previously established due date.
  • Show reasonable cause for requiring another extension.
  • Establish reasons that prevented you from filing by the extended due date.

Your previous due date still applies.


What you need to do

  • File your required Exempt Organization Return immediately to limit any late filing penalties. If your Exempt Organization Return is filed after the due date of the return (including any extensions), the return is considered late and subject to late filing penalties.
  • We encourage you to use electronic filing – the fastest and easiest way to file.

You may want to

  • Visit www.irs.gov/Charities-&-Non-Profits to learn about approved e-File providers, what types of returns can be filed electronically, and whether you are required to file electronically.

Answers to Common Questions

Q. Where can I go for more information about tax-exempt organizations?

A. For more information on Employee Benefit Plans, see Tax Information for Charities & Other Non-Profits.

Q. Can I get help over the phone?

A. If you have questions and/or need help, you can call 1-877-829-5500. Personal assistance is available Monday through Friday, 7:00 a.m. to 7:00 p.m. CT.


Tips for next year

Be sure to sign and mail your Form 8868 with a reason you need an additional 3-month extension on or before the due date of your first extension.

Page Last Reviewed or Updated: 24-Jan-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Free File State Return Only

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