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Daycare Facility(p11)

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Example 2.(p12)

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. 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. Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. The basement and room are 60% of the total area of her home. In figuring her expenses, 34.25% of any direct expenses for the basement and room are deductible. In addition, 20.55% (34.25% × 60%) of her indirect expenses are deductible.

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Example 3.(p12)

Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2007. 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. During the other 12 hours a day, the family could still use the basement. She figures the percentage of time the basement was used for business as follows.

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	=	35.71%

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

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

taxmap/pubs/p587-004.htm#TXMP4f6a0d0b Meals.(p12)

If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Claim it as a separate deduction on your Schedule C (Form 1040). You can never deduct the cost of food consumed by you or your family. You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates, later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. 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. 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.

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

Reimbursements you receive from a sponsor under the Child and Adult Food Care Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C. If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C. Do not include payments or expenses for your own children if they are eligible for the program. Follow this procedure even if you receive a Form 1099 reporting a payment from the sponsor.

taxmap/pubs/p587-004.htm#TXMP2225811e Standard meal and snack rates.(p12)

If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. For these purposes:

• A family daycare provider is a person engaged in the business of providing family daycare.
• Family daycare is childcare provided to eligible children in the home of the family daycare provider. The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day.
• Eligible children are minor children receiving family daycare in the home of the family daycare provider. Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Eligible children do not include children who receive daycare services for personal reasons of the provider. For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child.

You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement.

You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year.

If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. This information can be recorded in a log similar to the one shown in Exhibit A, later.

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. These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). 
 

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Table 3. 2007 Standard Meal and Snack Rates

Location of Family Daycare Provider	Breakfast	Lunch	Dinner	Snack
States other than Alaska and Hawaii	$1.06	$1.97	$1.97	$0.58
Alaska	$1.69	$3.20	$3.20	$0.95
Hawaii	$1.24	$2.31	$2.31	$0.69

See Publication 946 for a discussion of the mid-quarter convention and for complete MACRS percentage tables.

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Example.(p16)

In June 2007, Donald Kent bought a desk and three chairs for use in his office. His total bill for the furniture was $1,975. His taxable business income for the year was $3,000 without any deduction for the office furniture. Donald can elect to do one of the following.

• Take a section 179 deduction for the full cost of the office furniture.
• Take part of the cost of the furniture as a section 179 deduction and depreciate the balance.
• Depreciate the full cost of the office furniture.

The furniture is 7-year property under MACRS. Donald does not take a section 179 deduction. He multiplies $1,975 by 14.29% (.1429) to get his MACRS depreciation deduction of $282.23.

taxmap/pubs/p587-004.htm#TXMP02951b79 Personal Property Converted to Business Use(p16)

Personal Property Converted to Business Use

If you use property in your home office that was used previously for personal purposes, you cannot take a section 179 deduction for the property. You also cannot take a GO Zone depreciation allowance for the property. You can depreciate it, however. The method of depreciation you use depends on when you first used the property for personal purposes.

If you began using the property for personal purposes after 1986 and change it to business use in 2007, depreciate the property under MACRS.

The basis for depreciation of property changed from personal to business use is the lesser of the following.

• The adjusted basis of the property on the date of change.
• The fair market value of the property on the date of change.

If you began using the property for personal purposes after 1980 and before 1987 and change it to business use in 2007, you generally depreciate the property under the accelerated cost recovery system (ACRS). However, if the depreciation under ACRS is greater in the first year than the depreciation under MACRS, you must depreciate it under MACRS. For information on ACRS, see Publication 534, Depreciating Property Placed in Service Before 1987.

If you began using the property for personal purposes before 1981 and change it to business use in 2007, depreciate the property by the straight line or declining balance method based on salvage value and useful life.

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