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H&r Tax Cut

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H&r Tax Cut

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

H&r tax cut Index A Additional Medicare Tax, Reminders, Additional Medicare Tax withholding. H&r tax cut Adjustments, Reporting Adjustments to Form 941-SS, 944-SS, 944, or 943 Agricultural labor, Deposits. H&r tax cut Aliens, nonresidents, Deposits. H&r tax cut Assistance (see Tax help) C Calendar, Calendar Comments on publication, Comments and suggestions. H&r tax cut Common-law employee, Employee status under common law. H&r tax cut Corrected wage and tax statement, Correcting Forms W-2AS, W-2CM, W-2GU, W-2VI, and Form W-3SS. H&r tax cut Crew leaders, Farm Crew Leaders Current period adjustments, Current Period Adjustments D Deposit How to deposit, How To Deposit Penalties, Deposit Penalties Period, Deposit Period Requirements, 8. H&r tax cut Depositing Taxes Rules $100,000 next-day deposit, $100,000 Next-Day Deposit Rule Accuracy of deposits, Accuracy of Deposits Rule Schedules Monthly, Monthly Deposit Schedule Semiweekly, Semiweekly Deposit Schedule When to deposit, When To Deposit E Electronic deposits, Electronic deposit requirement. H&r tax cut Electronic filing and payment, Reminders Employee, 2. H&r tax cut Who Are Employees? Employer identification number (EIN), 1. H&r tax cut Employer Identification Number (EIN) F Family employees, Deposits. H&r tax cut Farm crew leaders, Farm Crew Leaders Farmworkers, 6. H&r tax cut Social Security and Medicare Taxes for Farmworkers, Employers of farmworkers. H&r tax cut Federal employees, Deposits. H&r tax cut Fishing, Deposits. H&r tax cut Form, Calendar, Lookback period for employers of nonfarm workers. H&r tax cut 4070, 5. H&r tax cut Tips 4070A, 5. H&r tax cut Tips 8274, Deposits. H&r tax cut 940, Calendar 941-SS, Calendar, Current Period Adjustments 941-X, Adjustments to lookback period taxes. H&r tax cut 943, Calendar 943-X, Adjustments to lookback period taxes. H&r tax cut 944-X, Adjustments to lookback period taxes. H&r tax cut Schedule H (Form 1040), Household employers reporting social security and Medicare taxes. H&r tax cut SS-4, 1. H&r tax cut Employer Identification Number (EIN) SS-5, Reminders, Employee's social security card. H&r tax cut SS-8, IRS help. H&r tax cut W-2c, Employee's social security card. H&r tax cut , Correcting Forms W-2AS, W-2CM, W-2GU, W-2VI, and Form W-3SS. H&r tax cut Fringe benefits, Fringe Benefits, Deposits. H&r tax cut FUTA tax, 11. H&r tax cut Federal Unemployment (FUTA) Tax—U. H&r tax cut S. H&r tax cut Virgin Islands Employers Only G Government employees, nonfederal, Deposits. H&r tax cut Group-term life insurance, Deposits. H&r tax cut H Help (see Tax help) Hiring new employees, Reminders Homeworkers, Deposits. H&r tax cut Hospital interns, Deposits. H&r tax cut Household employers, Household employers reporting social security and Medicare taxes. H&r tax cut Household workers, Household employers reporting social security and Medicare taxes. H&r tax cut , Deposits. H&r tax cut How to deposit, How To Deposit I Insurance agents, Deposits. H&r tax cut IRS help (employee v. H&r tax cut subcontractor), IRS help. H&r tax cut L Lookback period Farmworkers, Lookback period for employers of farmworkers. H&r tax cut Nonfarm workers, Lookback period for employers of nonfarm workers. H&r tax cut M Meals and lodging, Deposits. H&r tax cut Ministers, Deposits. H&r tax cut Monthly deposit schedule, Monthly Deposit Schedule Moving expenses, Deposits. H&r tax cut N Newspaper delivery, Deposits. H&r tax cut Noncash payments, Deposits. H&r tax cut Nonprofit organizations, Deposits. H&r tax cut P Partners, Deposits. H&r tax cut Penalties, Deposit Penalties Pension plans, Deposits. H&r tax cut Prior period adjustments, Prior Period Adjustments Private delivery services, Reminders Publications (see Tax help) R Recordkeeping, Reminders Religious orders, Deposits. H&r tax cut Retirement and pension plans, Deposits. H&r tax cut S Salespersons, Deposits. H&r tax cut Scholarships and fellowships, Deposits. H&r tax cut Semiweekly deposit schedule, Semiweekly Deposit Schedule Severance pay, Deposits. H&r tax cut Sick pay, Sick pay. H&r tax cut , Sick pay payments. H&r tax cut , Deposits. H&r tax cut Social security number (SSN), 3. H&r tax cut Employee's Social Security Number (SSN) Statutory employee, Statutory employees. H&r tax cut Statutory nonemployee, Statutory nonemployees. H&r tax cut Students, Deposits. H&r tax cut Suggestions for publication, Comments and suggestions. H&r tax cut Supplemental unemployment compensation benefits, Deposits. H&r tax cut T Tax help, How To Get Tax Help Tax Help, Tax help. H&r tax cut Taxes paid by employer, Employee's portion of taxes paid by employer. H&r tax cut Tips, 5. H&r tax cut Tips, Deposits. H&r tax cut Travel and business expenses, Travel and business expenses. H&r tax cut Trust fund recovery penalty, Trust fund recovery penalty. H&r tax cut W Wage and Tax Statement, 10. H&r tax cut Wage and Tax Statements Prev  Up     Home   More Online Publications