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Taxact 2007

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Taxact 2007

Taxact 2007 Publication 597 - Main Content Table of Contents Application of Treaty Personal Services Pensions, Annuities, Social Security, and AlimonyRoth IRAs. Taxact 2007 Tax-deferred plans. Taxact 2007 Investment Income From Canadian Sources Other Income Charitable ContributionsQualified charities. Taxact 2007 Income Tax Credits Competent Authority Assistance How To Get Tax HelpText of Treaty U. Taxact 2007 S. Taxact 2007 Taxation Canadian Taxation Application of Treaty The benefits of the income tax treaty are generally provided on the basis of residence for income tax purposes. Taxact 2007 That is, a person who is recognized as a resident of the United States who has income from Canada, will often pay less income tax to Canada on that income than if no treaty was in effect. Taxact 2007 Article IV provides definitions of residents of Canada and the United States, and provides specific criteria for applying the treaty in cases where a taxpayer is considered by both countries to be a resident. Taxact 2007 Saving clause. Taxact 2007   In most instances, a treaty does not affect the right of a country to tax its own residents (including those who are U. Taxact 2007 S. Taxact 2007 citizens) or of the United States to tax its residents or citizens (including U. Taxact 2007 S. Taxact 2007 citizens who are residents of the foreign country). Taxact 2007 This provision is known as the “saving clause. Taxact 2007 ”   For example, an individual who is a U. Taxact 2007 S. Taxact 2007 citizen and a resident of Canada may have dividend income from a U. Taxact 2007 S. Taxact 2007 corporation. Taxact 2007 The treaty provides a maximum rate of 15% on dividends received by a resident of Canada from sources in the United States. Taxact 2007 Even though a resident of Canada, the individual is a U. Taxact 2007 S. Taxact 2007 citizen and the saving clause overrides the treaty article that limits the U. Taxact 2007 S. Taxact 2007 tax to 15%. Taxact 2007    Exceptions to the saving clause can be found in Article XXIX, paragraph 3. Taxact 2007 Treaty-based position. Taxact 2007   If you take the position that any U. Taxact 2007 S. Taxact 2007 tax is overruled or otherwise reduced by a U. Taxact 2007 S. Taxact 2007 treaty (a treaty-based position), you generally must disclose that position on Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), and attach it to your return. Taxact 2007 Personal Services A U. Taxact 2007 S. Taxact 2007 citizen or resident who is temporarily present in Canada during the tax year is exempt from Canadian income taxes on pay for services performed, or remittances received from the United States, if the citizen or resident qualifies under one of the treaty exemption provisions set out below. Taxact 2007 Income from employment (Article XV). Taxact 2007   Income U. Taxact 2007 S. Taxact 2007 residents receive for the performance of dependent personal services in Canada (except as public entertainers) is exempt from Canadian tax if it is not more than $10,000 in Canadian currency for the year. Taxact 2007 If it is more than $10,000 for the year, it is exempt only if: The residents are present in Canada for no more than 183 days in any 12-month period beginning or ending in the year concerned, and The income is not paid by, or on behalf of, a Canadian resident and is not borne by a permanent establishment in Canada. Taxact 2007    Whether there is a permanent establishment in Canada is determined by the rules set forth in Article V. Taxact 2007 Example. Taxact 2007 You are a U. Taxact 2007 S. Taxact 2007 resident employed under an 8-month contract with a Canadian firm to install equipment in their Montreal plant. Taxact 2007 During the calendar year you were physically present in Canada for 179 days and were paid $16,500 (Canadian) for your services. Taxact 2007 Although you were in Canada for not more than 183 days during the year, your income is not exempt from Canadian income tax because it was paid by a Canadian resident and was more than $10,000 (Canadian) for the year. Taxact 2007 Pay received by a U. Taxact 2007 S. Taxact 2007 resident for work regularly done in more than one country as an employee on a ship, aircraft, motor vehicle, or train operated by a U. Taxact 2007 S. Taxact 2007 resident is exempt from Canadian tax. Taxact 2007 Income from self-employment (Article VII). Taxact 2007   Income from services performed (other than those performed as an employee) are taxed in Canada if they are attributable to a permanent establishment in Canada. Taxact 2007 This income is treated as business profits, and deductions similar to those allowed under U. Taxact 2007 S. Taxact 2007 law are allowable. Taxact 2007   If you carry on (or have carried on) business in both Canada and the United States, the business profits are attributable to each country based on the profits that the permanent establishment might be expected to make if it were a distinct and separate person engaged in the same or similar activities. Taxact 2007 The business profits attributable to the permanent establishment include only those profits derived from assets used, risks assumed, and activities performed by the permanent establishment. Taxact 2007   You may be considered to have a permanent establishment if you meet certain conditions. Taxact 2007 For more information, see Article V (Permanent Establishment) and Article VII (Business Profits). Taxact 2007 Public entertainers (Article XVI). Taxact 2007   The provisions under income from employment or income from self-employment do not apply to public entertainers (such as theater, motion picture, radio, or television artistes, musicians, or athletes) from the United States who receive more than $15,000 in gross receipts in Canadian currency, including reimbursed expenses, from their entertainment activities in Canada during the calendar year. Taxact 2007 However, this provision for public entertainers does not apply (and the other provisions will apply) to athletes participating in team sports in leagues with regularly scheduled games in both the United States and Canada. Taxact 2007 Compensation paid by the U. Taxact 2007 S. Taxact 2007 Government (Article XIX). Taxact 2007   Wages, salaries, and similar income (other than pensions) paid to a U. Taxact 2007 S. Taxact 2007 citizen by the United States or any of its agencies, instrumentalities, or political subdivisions for discharging governmental functions are exempt from Canadian income tax. Taxact 2007   The exemption does not apply to pay for services performed in connection with any trade or business carried on for profit by the United States, or any of its agencies, instrumentalities, or political subdivisions. Taxact 2007 Students and apprentices (Article XX). Taxact 2007   A full-time student, apprentice, or business trainee who is in Canada to study or acquire business experience is exempt from Canadian income tax on remittances received from any source outside Canada for maintenance, education, or training. Taxact 2007 The recipient must be or must have been a U. Taxact 2007 S. Taxact 2007 resident immediately before visiting Canada. Taxact 2007   An apprentice or business trainee can claim this exemption only for a period of one year from the date the individual first arrived in Canada for the purpose of training. Taxact 2007 Pensions, Annuities, Social Security, and Alimony Under Article XVIII, pensions and annuities from Canadian sources paid to U. Taxact 2007 S. Taxact 2007 residents are subject to tax by Canada, but the tax is limited to 15% of the gross amount (if a periodic pension payment) or of the taxable amount (if an annuity). Taxact 2007 Canadian pensions and annuities paid to U. Taxact 2007 S. Taxact 2007 residents may be taxed by the United States, but the amount of any pension included in income for U. Taxact 2007 S. Taxact 2007 tax purposes may not be more than the amount that would be included in income in Canada if the recipient were a Canadian resident. Taxact 2007 Pensions. Taxact 2007   A pension includes any payment under a pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances, and payments under a sickness, accident, or disability plan. Taxact 2007 It includes pensions paid by private employers and the government for services rendered. Taxact 2007   Pensions also include payments from individual retirement arrangements (IRAs) in the United States, registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in Canada. Taxact 2007   Pensions do not include social security benefits. Taxact 2007 Roth IRAs. Taxact 2007   A distribution from a Roth IRA is exempt from Canadian tax to the extent it would be exempt from U. Taxact 2007 S. Taxact 2007 tax if paid to a U. Taxact 2007 S. Taxact 2007 resident. Taxact 2007 In addition, you may elect to defer any tax in Canada on income accrued within the Roth IRA but not distributed by the Roth IRA. Taxact 2007 However, you cannot defer tax on any accruals due to contributions made after you become a Canadian resident. Taxact 2007 Tax-deferred plans. Taxact 2007   Generally, income that accrues in a Canadian RRSP or RRIF is subject to U. Taxact 2007 S. Taxact 2007 tax, even if it is not distributed. Taxact 2007 However, a U. Taxact 2007 S. Taxact 2007 citizen or resident can elect to defer U. Taxact 2007 S. Taxact 2007 tax on income from the plan until the income is distributed. Taxact 2007 Form 8891 is used to make the election. Taxact 2007 Annuities. Taxact 2007    An annuity is a stated sum payable periodically at stated times, during life, or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered). Taxact 2007 Annuities do not include: Non-periodic payments, or An annuity the cost of which was deductible for tax purposes. Taxact 2007 Special rules. Taxact 2007    Special rules apply to pensions and annuities with respect to: Short-term assignments, Cross-border commuters, and Individuals who participate in a Canadian qualifying plan. Taxact 2007 Generally, distributions in such cases are deemed to be earned in the country in which the plan is established, without regard to where the services were rendered. Taxact 2007 Social security benefits. Taxact 2007   U. Taxact 2007 S. Taxact 2007 social security benefits paid to a resident of Canada are taxed in Canada as if they were benefits under the Canada Pension Plan, except that 15% of the amount of the benefit is exempt from Canadian tax. Taxact 2007 Alimony. Taxact 2007   Alimony and similar amounts (including child support payments) from Canadian sources paid to U. Taxact 2007 S. Taxact 2007 residents are exempt from Canadian tax. Taxact 2007 For purposes of U. Taxact 2007 S. Taxact 2007 tax, these amounts are excluded from income to the same extent they would be excluded from income in Canada if the recipient was a Canadian resident. Taxact 2007 Investment Income From Canadian Sources The treaty provides beneficial treatment for certain items of Canadian source income that result from an investment of capital. Taxact 2007 Dividends (Article X). Taxact 2007   For Canadian source dividends received by U. Taxact 2007 S. Taxact 2007 residents, the Canadian income tax generally may not be more than 15%. Taxact 2007   A 5% rate applies to intercorporate dividends paid from a subsidiary to a parent corporation owning at least 10% of the subsidiary's voting stock. Taxact 2007 However, a 10% rate applies if the payer of the dividend is a nonresident-owned Canadian investment corporation. Taxact 2007   These rates do not apply if the owner of the dividends carries on, or has carried on, a business in Canada through a permanent establishment and the holding on which the income is paid is effectively connected with that permanent establishment. Taxact 2007 Interest (Article XI). Taxact 2007   Generally, Canadian source interest received by U. Taxact 2007 S. Taxact 2007 residents is exempt from Canadian income tax. Taxact 2007   The exemption does not apply if the owner of the interest carries on, or has carried on, a business in Canada through a permanent establishment and the debt on which the income is paid is effectively connected with that permanent establishment. Taxact 2007 Gains from the sale of property (Article XIII). Taxact 2007   Generally, gains from the sale of personal property by a U. Taxact 2007 S. Taxact 2007 resident having no permanent establishment in Canada are exempt from Canadian income tax. Taxact 2007 However, the exemption from Canadian tax does not apply to gains realized by U. Taxact 2007 S. Taxact 2007 residents on Canadian real property, and on personal property belonging to a permanent establishment in Canada. Taxact 2007   If the property subject to Canadian tax is a capital asset and was owned by the U. Taxact 2007 S. Taxact 2007 resident on September 26, 1980, not as part of the business property of a permanent establishment in Canada, generally the taxable gain is limited to the appreciation after 1984. Taxact 2007 Royalties (Article XII). Taxact 2007   The following are exempt from Canadian tax: Copyright royalties and other like payments for the production or reproduction of any literary, dramatic, musical, or artistic work (other than payments for motion pictures and works on film, videotape, or other means of reproduction for use in connection with television, which may be taxed at 10%), Payments for the use of, or the right to use, computer software, Payments for the use of, or the right to use, any patent or any information concerning industrial, commercial, or scientific experience (but not within a rental or franchise agreement), and Payments for broadcasting as agreed to in an exchange of notes between the countries. Taxact 2007   This rate or exemption does not apply if the owner of the royalties carries on, or has carried on, a business in Canada through a permanent establishment and the right or property on which the income is paid is effectively connected with that permanent establishment. Taxact 2007   This exemption (or lower rate) does not apply to royalties to explore for or to exploit mineral deposits, timber, and other natural resources. Taxact 2007 Other Income Generally, Canadian source income that is not specifically mentioned in the treaty, may be taxed by Canada. Taxact 2007 Gambling losses. Taxact 2007   Canadian residents may deduct gambling losses in the U. Taxact 2007 S. Taxact 2007 against gambling winnings in the U. Taxact 2007 S. Taxact 2007 in the same manner as a U. Taxact 2007 S. Taxact 2007 resident. Taxact 2007 Charitable Contributions United States income tax return. Taxact 2007   Under Article XXI, you may deduct contributions to certain qualified Canadian charitable organizations on your United States income tax return. Taxact 2007 Besides being subject to the overall limits applicable to all your charitable contributions under U. Taxact 2007 S. Taxact 2007 tax law, your charitable contributions to Canadian organizations (other than contributions to a college or university at which you or a member of your family is or was enrolled) are subject to the U. Taxact 2007 S. Taxact 2007 percentage limits on charitable contributions, applied to your Canadian source income. Taxact 2007 If your return does not include gross income from Canadian sources, charitable contributions to Canadian organizations are generally not deductible. Taxact 2007 Example. Taxact 2007 You are a U. Taxact 2007 S. Taxact 2007 citizen living in Canada. Taxact 2007 You have both U. Taxact 2007 S. Taxact 2007 and Canadian source income. Taxact 2007 During your tax year, you contribute to Canadian organizations that would qualify as charitable organizations under U. Taxact 2007 S. Taxact 2007 tax law if they were U. Taxact 2007 S. Taxact 2007 organizations. Taxact 2007 To figure the maximum amount of the contribution to Canadian organizations that you can deduct on your U. Taxact 2007 S. Taxact 2007 income tax return, multiply your adjusted gross income from Canadian sources by the percentage limit that applies to contributions under U. Taxact 2007 S. Taxact 2007 income tax law. Taxact 2007 Then include this amount on your return along with all your domestic charitable contributions, subject to the appropriate percentage limit required for contributions under U. Taxact 2007 S. Taxact 2007 income tax law. Taxact 2007 The appropriate percentage limit for U. Taxact 2007 S. Taxact 2007 tax purposes is applied to your total adjusted gross income from all sources. Taxact 2007 Qualified charities. Taxact 2007   These Canadian organizations must meet the qualifications that a U. Taxact 2007 S. Taxact 2007 charitable organization must meet under U. Taxact 2007 S. Taxact 2007 tax law. Taxact 2007 Usually an organization will notify you if it qualifies. Taxact 2007 For further information on charitable contributions and the U. Taxact 2007 S. Taxact 2007 percentage limits, see Publication 526, Charitable Contributions. Taxact 2007 Canadian income tax return. Taxact 2007   Under certain conditions, contributions to qualified U. Taxact 2007 S. Taxact 2007 charitable organizations may also be claimed on your Canadian income tax return if you are a Canadian resident. Taxact 2007 Income Tax Credits The treaty contains a credit provision (Article XXIV) for the elimination of double taxation. Taxact 2007 In general, the United States and Canada both allow a credit against their income tax for the income tax paid to the other country on income from sources in that other country. Taxact 2007 For detailed discussions of the U. Taxact 2007 S. Taxact 2007 income tax treatment of tax paid to foreign countries, see Publication 514, Foreign Tax Credit for Individuals. Taxact 2007 See paragraphs (4) and (5) of Article XXIV for certain provisions that affect the computation of the credit allowed by the United States for Canadian income taxes paid by U. Taxact 2007 S. Taxact 2007 citizens residing in Canada. Taxact 2007 Competent Authority Assistance Under Article XXVI, a U. Taxact 2007 S. Taxact 2007 citizen or resident may request assistance from the U. Taxact 2007 S. Taxact 2007 competent authority when the actions of Canada, the United States, or both, potentially result in double taxation or taxation contrary to the treaty. Taxact 2007 The U. Taxact 2007 S. Taxact 2007 competent authority may then consult with the Canadian competent authority to determine if the double taxation or denial of treaty benefits in question can be avoided. Taxact 2007 If the competent authorities are not able to reach agreement in a case, binding arbitration proceedings may apply. Taxact 2007 It is important that your request for competent authority assistance be made as soon as you have been notified by either Canada or the United States of proposed adjustments that would result in denial of treaty benefits or in double taxation. Taxact 2007 This is so that implementation of any agreement reached by the competent authorities is not barred by administrative, legal, or procedural barriers. Taxact 2007 For information that you should include with your request for competent authority assistance, see Revenue Procedure 2006-54, 2006-49 IRB 1035, available at www. Taxact 2007 irs. Taxact 2007 gov/irb/2006-49_IRB/ar13. Taxact 2007 html. Taxact 2007 The request should be addressed to:  Deputy Commissioner (International) Large Business and International Division Attn: Office of Tax Treaty  Internal Revenue Service 1111 Constitution Ave. Taxact 2007 , NW Routing: MA3-322A Washington, D. Taxact 2007 C. Taxact 2007 20024 In addition to a timely request for assistance, you should take the following measures: File a timely protective claim for credit or refund of U. Taxact 2007 S. Taxact 2007 taxes on Form 1040X, Form 1120X, or amended Form 1041, whichever is appropriate. Taxact 2007 This will, among other things, give you the benefit of a foreign tax credit in case you do not qualify for the treaty benefit in question. Taxact 2007 For figuring this credit, attach either Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), or Form 1118, Foreign Tax Credit — Corporations, as appropriate. Taxact 2007 Attach your protective claim to your request for competent authority assistance. Taxact 2007 Take appropriate action under Canadian procedures to avoid the lapse or termination of your right of appeal under Canadian income tax law. Taxact 2007 How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS and the Canada Revenue Agency in several ways. Taxact 2007 Text of Treaty You can get the text of the U. Taxact 2007 S. Taxact 2007 —Canada income tax treaty from: Superintendent of Documents U. Taxact 2007 S. Taxact 2007 Government Printing Office P. Taxact 2007 O. Taxact 2007 Box 371954 Pittsburgh, PA 15250-7954 The treaty can also be found on the Internet at IRS. Taxact 2007 gov. Taxact 2007 U. Taxact 2007 S. Taxact 2007 Taxation During the filing season, the IRS conducts a taxpayer assistance program in Canada. Taxact 2007 To find out if IRS personnel will be in your area, you should contact the consular office at the nearest U. Taxact 2007 S. Taxact 2007 Embassy or consulate. Taxact 2007 Mail. Taxact 2007 For answers to technical or account questions, you can write to:   Internal Revenue Service International Section Philadelphia, PA 19255-0525 Phone. Taxact 2007 You can call the IRS for help at (267) 941-1000 (not a toll-free call). Taxact 2007 Canadian Taxation You can get information on Canadian taxation from the Canada Revenue Agency. Taxact 2007 The International Tax Services Office can be contacted on 1-800-267-5177 (from anywhere in Canada and the U. Taxact 2007 S. Taxact 2007 ) or on the Internet at www. Taxact 2007 cra-arc. Taxact 2007 gc. Taxact 2007 ca. Taxact 2007 Prev  Up  Next   Home   More Online Publications
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The Taxact 2007

Taxact 2007 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. Taxact 2007 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. Taxact 2007 However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Taxact 2007 Even then, the deductible amount of these types of expenses may be limited. Taxact 2007 Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Taxact 2007 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). Taxact 2007 Additional tests for employee use. Taxact 2007   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. Taxact 2007 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. Taxact 2007 If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Taxact 2007 Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Taxact 2007 The area used for business can be a room or other separately identifiable space. Taxact 2007 The space does not need to be marked off by a permanent partition. Taxact 2007 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. Taxact 2007 Example. Taxact 2007 You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Taxact 2007 Your family also uses the den for recreation. Taxact 2007 The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Taxact 2007 Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Taxact 2007 You use part of your home for the storage of inventory or product samples (discussed next). Taxact 2007 You use part of your home as a daycare facility, discussed later under Daycare Facility . Taxact 2007 Note. Taxact 2007 With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Taxact 2007 Storage of inventory or product samples. Taxact 2007    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. Taxact 2007 However, you must meet all the following tests. Taxact 2007 You sell products at wholesale or retail as your trade or business. Taxact 2007 You keep the inventory or product samples in your home for use in your trade or business. Taxact 2007 Your home is the only fixed location of your trade or business. Taxact 2007 You use the storage space on a regular basis. Taxact 2007 The space you use is a separately identifiable space suitable for storage. Taxact 2007 Example. Taxact 2007 Your home is the only fixed location of your business of selling mechanics' tools at retail. Taxact 2007 You regularly use half of your basement for storage of inventory and product samples. Taxact 2007 You sometimes use the area for personal purposes. Taxact 2007 The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Taxact 2007 Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Taxact 2007 Incidental or occasional business use is not regular use. Taxact 2007 You must consider all facts and circumstances in determining whether your use is on a regular basis. Taxact 2007 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. Taxact 2007 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. Taxact 2007 Example. Taxact 2007 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. Taxact 2007 You do not make investments as a broker or dealer. Taxact 2007 So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Taxact 2007 Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Taxact 2007 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. Taxact 2007 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. Taxact 2007 Your home office will qualify as your principal place of business if you meet the following requirements. Taxact 2007 You use it exclusively and regularly for administrative or management activities of your trade or business. Taxact 2007 You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Taxact 2007 If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Taxact 2007 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. Taxact 2007 Administrative or management activities. Taxact 2007   There are many activities that are administrative or managerial in nature. Taxact 2007 The following are a few examples. Taxact 2007 Billing customers, clients, or patients. Taxact 2007 Keeping books and records. Taxact 2007 Ordering supplies. Taxact 2007 Setting up appointments. Taxact 2007 Forwarding orders or writing reports. Taxact 2007 Administrative or management activities performed at other locations. Taxact 2007   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Taxact 2007 You have others conduct your administrative or management activities at locations other than your home. Taxact 2007 (For example, another company does your billing from its place of business. Taxact 2007 ) 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. Taxact 2007 You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Taxact 2007 You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Taxact 2007 (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Taxact 2007 ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Taxact 2007 Please click here for the text description of the image. Taxact 2007 Can you deduct business use of the home expenses? Example 1. Taxact 2007 John is a self-employed plumber. Taxact 2007 Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Taxact 2007 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. Taxact 2007 John writes up estimates and records of work completed at his customers' premises. Taxact 2007 He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Taxact 2007 John does not do his own billing. Taxact 2007 He uses a local bookkeeping service to bill his customers. Taxact 2007 John's home office qualifies as his principal place of business for deducting expenses for its use. Taxact 2007 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. Taxact 2007 His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Taxact 2007 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. Taxact 2007 Example 2. Taxact 2007 Pamela is a self-employed sales representative for several different product lines. Taxact 2007 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. Taxact 2007 She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Taxact 2007 Pamela's business is selling products to customers at various locations throughout her territory. Taxact 2007 To make these sales, she regularly visits customers to explain the available products and take orders. Taxact 2007 Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Taxact 2007 She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Taxact 2007 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. Taxact 2007 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. Taxact 2007 Example 3. Taxact 2007 Paul is a self-employed anesthesiologist. Taxact 2007 He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Taxact 2007 One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Taxact 2007 Paul very rarely uses the office the hospital provides. Taxact 2007 He uses a room in his home that he has converted to an office. Taxact 2007 He uses this room exclusively and regularly to conduct all the following activities. Taxact 2007 Contacting patients, surgeons, and hospitals regarding scheduling. Taxact 2007 Preparing for treatments and presentations. Taxact 2007 Maintaining billing records and patient logs. Taxact 2007 Satisfying continuing medical education requirements. Taxact 2007 Reading medical journals and books. Taxact 2007 Paul's home office qualifies as his principal place of business for deducting expenses for its use. Taxact 2007 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. Taxact 2007 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. Taxact 2007 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. Taxact 2007 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. Taxact 2007 Example 4. Taxact 2007 Kathleen is employed as a teacher. Taxact 2007 She is required to teach and meet with students at the school and to grade papers and tests. Taxact 2007 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. Taxact 2007 The school does not require her to work at home. Taxact 2007 Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Taxact 2007 She uses this home office exclusively and regularly for the administrative duties of her teaching job. Taxact 2007 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. Taxact 2007 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. Taxact 2007 More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Taxact 2007 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. Taxact 2007 You must use the home office exclusively and regularly for one or more of the following purposes. Taxact 2007 As the principal place of business for one or more of your trades or businesses. Taxact 2007 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. Taxact 2007 If your home office is a separate structure, in connection with one or more of your trades or businesses. Taxact 2007 You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Taxact 2007 e. Taxact 2007 , personal) activities. Taxact 2007 If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Taxact 2007 See Rental to employer , later, if you rent part of your home to your employer. Taxact 2007 Example. Taxact 2007 Tracy White is employed as a teacher. Taxact 2007 Her principal place of work is the school, which provides her office space to do her school work. Taxact 2007 She also has a mail order jewelry business. Taxact 2007 All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Taxact 2007 If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Taxact 2007 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. Taxact 2007 As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Taxact 2007 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. Taxact 2007 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. Taxact 2007 You physically meet with patients, clients, or customers on your premises. Taxact 2007 Their use of your home is substantial and integral to the conduct of your business. Taxact 2007 Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Taxact 2007 Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Taxact 2007 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. Taxact 2007 Example. Taxact 2007 June Quill, a self-employed attorney, works 3 days a week in her city office. Taxact 2007 She works 2 days a week in her home office used only for business. Taxact 2007 She regularly meets clients there. Taxact 2007 Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Taxact 2007 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. Taxact 2007 The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Taxact 2007 Example. Taxact 2007 John Berry operates a floral shop in town. Taxact 2007 He grows the plants for his shop in a greenhouse behind his home. Taxact 2007 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. Taxact 2007 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. Taxact 2007 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. Taxact 2007 Electing to use the simplified method. Taxact 2007   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Taxact 2007 You choose whether or not to figure your deduction using the simplified method each taxable year. Taxact 2007 See Using the Simplified Method , later. Taxact 2007 Rental to employer. Taxact 2007   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. Taxact 2007 You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Taxact 2007 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. Taxact 2007 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. Taxact 2007 You will also need to figure the percentage of your home used for business and the limit on the deduction. Taxact 2007 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. Taxact 2007 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. Taxact 2007 Part-year use. Taxact 2007   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. Taxact 2007 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. Taxact 2007 Expenses related to tax-exempt income. Taxact 2007   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Taxact 2007 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. Taxact 2007 No deduction is allowed for other expenses related to the tax-exempt allowance. Taxact 2007   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. Taxact 2007 Actual Expenses You must divide the expenses of operating your home between personal and business use. Taxact 2007 The part of a home operating expense you can use to figure your deduction depends on both of the following. Taxact 2007 Whether the expense is direct, indirect, or unrelated. Taxact 2007 The percentage of your home used for business. Taxact 2007 Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Taxact 2007 Table 1. Taxact 2007 Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Taxact 2007 Deductible in full. Taxact 2007 *   Examples:  Painting or repairs  only in the area  used for business. Taxact 2007 Exception: May be only partially  deductible in a daycare facility. Taxact 2007 See Daycare Facility , later. Taxact 2007 Indirect Expenses for  keeping up and running your  entire home. Taxact 2007 Deductible based on the percentage of your home used for business. Taxact 2007 *   Examples:  Insurance, utilities, and  general repairs. Taxact 2007   Unrelated Expenses only for  the parts of your  home not used  for business. Taxact 2007 Not deductible. Taxact 2007   Examples:  Lawn care or painting  a room not used  for business. Taxact 2007   *Subject to the deduction limit, discussed later. Taxact 2007 Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Taxact 2007 Certain expenses are deductible whether or not you use your home for business. Taxact 2007 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. Taxact 2007 These expenses include the following. Taxact 2007 Real estate taxes. Taxact 2007 Qualified mortgage insurance premiums. Taxact 2007 Deductible mortgage interest. Taxact 2007 Casualty losses. Taxact 2007 Other expenses are deductible only if you use your home for business. Taxact 2007 You can use the business percentage of these expenses to figure your total business use of the home deduction. Taxact 2007 These expenses generally include (but are not limited to) the following. Taxact 2007 Depreciation (covered under Depreciating Your Home , later). Taxact 2007 Insurance. Taxact 2007 Rent paid for the use of property you do not own but use in your trade or business. Taxact 2007 Repairs. Taxact 2007 Security system. Taxact 2007 Utilities and services. Taxact 2007 Real estate taxes. Taxact 2007   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. Taxact 2007   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Taxact 2007 Deductible mortgage interest. Taxact 2007   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Taxact 2007 You can include interest on a second mortgage in this computation. Taxact 2007 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. Taxact 2007 For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Taxact 2007 Qualified mortgage insurance premiums. Taxact 2007   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Taxact 2007 You can include premiums for insurance on a second mortgage in this computation. Taxact 2007 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. Taxact 2007 For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Taxact 2007 Casualty losses. Taxact 2007    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. Taxact 2007 A direct expense is the loss on the portion of the property you use only in your business. Taxact 2007 Use the entire loss to figure the business use of the home deduction. Taxact 2007 An indirect expense is the loss on property you use for both business and personal purposes. Taxact 2007 Use only the business portion to figure the deduction. Taxact 2007 An unrelated expense is the loss on property you do not use in your business. Taxact 2007 Do not use any of the loss to figure the deduction. Taxact 2007 Example. Taxact 2007 You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Taxact 2007 A storm damages your roof. Taxact 2007 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. Taxact 2007 You would complete Form 4684, Casualties and Thefts, to report your loss. Taxact 2007 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. Taxact 2007 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. Taxact 2007 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. Taxact 2007 Forms and worksheets to use. Taxact 2007   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Taxact 2007 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. Taxact 2007 You will also need to get Form 4684. Taxact 2007 More information. Taxact 2007   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Taxact 2007 Insurance. Taxact 2007   You can deduct the cost of insurance that covers the business part of your home. Taxact 2007 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. Taxact 2007 You can deduct the business percentage of the part that applies to the following year in that year. Taxact 2007 Rent. Taxact 2007   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. Taxact 2007 To figure your deduction, multiply your rent payments by the percentage of your home used for business. Taxact 2007   If you own your home, you cannot deduct the fair rental value of your home. Taxact 2007 However, see Depreciating Your Home , later. Taxact 2007 Repairs. Taxact 2007   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Taxact 2007 For example, a furnace repair benefits the entire home. Taxact 2007 If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Taxact 2007   Repairs keep your home in good working order over its useful life. Taxact 2007 Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Taxact 2007 However, repairs are sometimes treated as a permanent improvement and are not deductible. Taxact 2007 See Permanent improvements , later, under Depreciating Your Home. Taxact 2007 Security system. Taxact 2007   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. Taxact 2007 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. Taxact 2007 Utilities and services. Taxact 2007   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Taxact 2007 However, if you use part of your home for business, you can deduct the business part of these expenses. Taxact 2007 Generally, the business percentage for utilities is the same as the percentage of your home used for business. Taxact 2007 Telephone. Taxact 2007   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Taxact 2007 e. Taxact 2007 , landline) is a nondeductible personal expense. Taxact 2007 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. Taxact 2007 Do not include these expenses as a cost of using your home for business. Taxact 2007 Deduct these charges separately on the appropriate form or schedule. Taxact 2007 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). Taxact 2007 Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Taxact 2007 Depreciation is an allowance for the wear and tear on the part of your home used for business. Taxact 2007 You cannot depreciate the cost or value of the land. Taxact 2007 You recover its cost when you sell or otherwise dispose of the property. Taxact 2007 Before you figure your depreciation deduction, you need to know the following information. Taxact 2007 The month and year you started using your home for business. Taxact 2007 The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Taxact 2007 The cost of any improvements before and after you began using the property for business. Taxact 2007 The percentage of your home used for business. Taxact 2007 See Business Percentage , later. Taxact 2007 Adjusted basis defined. Taxact 2007   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. Taxact 2007 For a discussion of adjusted basis, see Publication 551. Taxact 2007 Permanent improvements. Taxact 2007   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Taxact 2007 Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Taxact 2007    You must carefully distinguish between repairs and improvements. Taxact 2007 See Repairs , earlier, under Actual Expenses. Taxact 2007 You also must keep accurate records of these expenses. Taxact 2007 These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Taxact 2007 However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Taxact 2007 Example. Taxact 2007 You buy an older home and fix up two rooms as a beauty salon. Taxact 2007 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. Taxact 2007 Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Taxact 2007 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. Taxact 2007 You cannot deduct any portion of it as a repair expense. Taxact 2007 Adjusting for depreciation deducted in earlier years. Taxact 2007   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. Taxact 2007 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. Taxact 2007 If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Taxact 2007   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. Taxact 2007   If you deducted the incorrect amount of depreciation, see Publication 946. Taxact 2007 Fair market value defined. Taxact 2007   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. Taxact 2007 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. Taxact 2007 Figuring the depreciation deduction for the current year. Taxact 2007   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Taxact 2007   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). Taxact 2007 Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Taxact 2007 For more information on MACRS and other methods of depreciation, see Publication 946. Taxact 2007   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Taxact 2007 The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Taxact 2007 The adjusted basis of your home (excluding land) on the date you began using your home for business. Taxact 2007 The fair market value of your home (excluding land) on the date you began using your home for business. Taxact 2007 Depreciation table. Taxact 2007   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. Taxact 2007 Table 2. Taxact 2007 MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Taxact 2007 461% 2 2. Taxact 2007 247% 3 2. Taxact 2007 033% 4 1. Taxact 2007 819% 5 1. Taxact 2007 605% 6 1. Taxact 2007 391% 7 1. Taxact 2007 177% 8 0. Taxact 2007 963% 9 0. Taxact 2007 749% 10 0. Taxact 2007 535% 11 0. Taxact 2007 321% 12 0. Taxact 2007 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. Taxact 2007 See Publication 946 for the percentages for the remaining tax years of the recovery period. Taxact 2007 Example. Taxact 2007 In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Taxact 2007 This room is 8% of the square footage of his home. Taxact 2007 He bought the home in 2003 for $125,000. Taxact 2007 He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Taxact 2007 In May, the house had a fair market value of $165,000. Taxact 2007 He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Taxact 2007 The result is $9,200, his depreciable basis for the business part of the house. Taxact 2007 George files his return based on the calendar year. Taxact 2007 May is the 5th month of his tax year. Taxact 2007 He multiplies his depreciable basis of $9,200 by 1. Taxact 2007 605% (. Taxact 2007 01605), the percentage from the table for the 5th month. Taxact 2007 His depreciation deduction is $147. Taxact 2007 66. Taxact 2007 Depreciating permanent improvements. Taxact 2007   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Taxact 2007 Depreciate these costs as part of the cost of your home as explained earlier. Taxact 2007 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. Taxact 2007 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. Taxact 2007 For improvements made this year, the recovery period is 39 years. Taxact 2007 For the percentage to use for the first year, see Table 2, earlier. Taxact 2007 For more information on recovery periods, see Publication 946. Taxact 2007 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. Taxact 2007 Use the resulting percentage to figure the business part of the expenses for operating your entire home. Taxact 2007 You can use any reasonable method to determine the business percentage. Taxact 2007 The following are two commonly used methods for figuring the percentage. Taxact 2007 Divide the area (length multiplied by the width) used for business by the total area of your home. Taxact 2007 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. Taxact 2007 Example 1. Taxact 2007 Your office is 240 square feet (12 feet × 20 feet). Taxact 2007 Your home is 1,200 square feet. Taxact 2007 Your office is 20% (240 ÷ 1,200) of the total area of your home. Taxact 2007 Your business percentage is 20%. Taxact 2007 Example 2. Taxact 2007 You use one room in your home for business. Taxact 2007 Your home has 10 rooms, all about equal size. Taxact 2007 Your office is 10% (1 ÷ 10) of the total area of your home. Taxact 2007 Your business percentage is 10%. Taxact 2007 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. Taxact 2007 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. Taxact 2007 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. Taxact 2007 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. Taxact 2007 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)). Taxact 2007 These expenses are discussed in detail under Actual Expenses , earlier. Taxact 2007 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. Taxact 2007 If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Taxact 2007 Carryover of unallowed expenses. Taxact 2007   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. Taxact 2007 They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Taxact 2007 Figuring the deduction limit and carryover. Taxact 2007   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. Taxact 2007 If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Taxact 2007 Example. Taxact 2007 You meet the requirements for deducting expenses for the business use of your home. Taxact 2007 You use 20% of your home for business. Taxact 2007 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. Taxact 2007    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). Taxact 2007 You also can deduct all of your business expenses not related to the use of your home ($2,000). Taxact 2007 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. Taxact 2007 Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Taxact 2007 You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Taxact 2007 More than one place of business. Taxact 2007   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. Taxact 2007 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. Taxact 2007 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. Taxact 2007 For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Taxact 2007 Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Taxact 2007 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. Taxact 2007 The area you use to figure your deduction is limited to 300 square feet. Taxact 2007 See Simplified Amount , later, for information about figuring the amount of the deduction. Taxact 2007 For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Taxact 2007 R. Taxact 2007 B. Taxact 2007 478, available at www. Taxact 2007 irs. Taxact 2007 gov/irb/2013-06_IRB/ar09. Taxact 2007 html. Taxact 2007 Actual expenses and depreciation of your home. Taxact 2007   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. Taxact 2007 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. Taxact 2007 The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Taxact 2007 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. Taxact 2007 More information. Taxact 2007   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Taxact 2007 R. Taxact 2007 B. Taxact 2007 478, available at www. Taxact 2007 irs. Taxact 2007 gov/irb/2013-06_IRB/ar09. Taxact 2007 html. Taxact 2007 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). Taxact 2007 Expenses deductible without regard to business use. Taxact 2007   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. Taxact 2007 These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Taxact 2007 See Where To Deduct , later. Taxact 2007 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). Taxact 2007 No deduction of carryover of actual expenses. Taxact 2007   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. Taxact 2007 Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Taxact 2007 Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Taxact 2007 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. Taxact 2007 An election for a taxable year, once made, is irrevocable. Taxact 2007 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. Taxact 2007 Shared use. Taxact 2007   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. Taxact 2007 More than one qualified business use. Taxact 2007   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. Taxact 2007 More than one home. Taxact 2007   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. Taxact 2007 You must figure the deduction for any other home using actual expenses. Taxact 2007 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. Taxact 2007 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. Taxact 2007 The allowable area of your home used in conducting the business. Taxact 2007 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. Taxact 2007 The gross income from the business use of your home. Taxact 2007 The amount of the business expenses that are not related to the use of your home. Taxact 2007 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. Taxact 2007 To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Taxact 2007 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). Taxact 2007 See Allowable area and Space used regularly for daycare , later. Taxact 2007 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. Taxact 2007 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. Taxact 2007 See Gross income limitation , later. Taxact 2007 Take the smaller of the amounts from (1) and (2). Taxact 2007 This is the amount you can deduct for this qualified business use of your home using the simplified method. Taxact 2007 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. Taxact 2007 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. Taxact 2007 Allowable area. Taxact 2007   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. Taxact 2007 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. Taxact 2007 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. Taxact 2007 Area used by a qualified joint venture. Taxact 2007   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. Taxact 2007 Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Taxact 2007 Then, each spouse will figure the allowable area separately. Taxact 2007 For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Taxact 2007 Shared use. Taxact 2007   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. Taxact 2007 You must allocate the shared space between you and the other person in a reasonable manner. Taxact 2007 Example. Taxact 2007 Kristin and Lindsey are roommates. Taxact 2007 Kristin uses 300 square feet of their home for a qualified business use. Taxact 2007 Lindsey uses 200 square feet of their home for a separate qualified business use. Taxact 2007 The qualified business uses share 100 square feet. Taxact 2007 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. Taxact 2007 If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Taxact 2007 More than one qualified business use. Taxact 2007   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. Taxact 2007 Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Taxact 2007 However, do not allocate more square feet to a qualified business use than you actually use for that business. Taxact 2007 Rental use. Taxact 2007   The simplified method does not apply to rental use. Taxact 2007 A rental use that qualifies for the deduction must be figured using actual expenses. Taxact 2007 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. Taxact 2007 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. Taxact 2007 Part-year use or area changes. Taxact 2007   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. Taxact 2007 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. Taxact 2007 When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Taxact 2007 Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Taxact 2007 Example 1. Taxact 2007 Andy files his federal income tax return on a calendar year basis. Taxact 2007 On July 20, he began using 420 square feet of his home for a qualified business use. Taxact 2007 He continued to use the 420 square feet until the end of the year. Taxact 2007 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). Taxact 2007 Example 2. Taxact 2007 Amy files her federal income tax return on a calendar year basis. Taxact 2007 On April 20, she began using 100 square feet of her home for a qualified business use. Taxact 2007 On August 5, she expanded the area of her qualified use to 330 square feet. Taxact 2007 Amy continued to use the 330 square feet until the end of the year. Taxact 2007 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). Taxact 2007 Gross income limitation. Taxact 2007   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. Taxact 2007 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. Taxact 2007 Business expenses not related to use of the home. Taxact 2007   These expenses relate to the business activity in the home, but not to the use of the home itself. Taxact 2007 You can still deduct business expenses that are unrelated to the use of the home. Taxact 2007 See Where To Deduct , later. Taxact 2007 Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Taxact 2007 Space used regularly for daycare. Taxact 2007   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. Taxact 2007 The reduced rate will equal the prescribed rate times a fraction. Taxact 2007 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. Taxact 2007 You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Taxact 2007    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. Taxact 2007 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. Taxact 2007 To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Taxact 2007 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. Taxact 2007 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. Taxact 2007 You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Taxact 2007 Figuring the deduction. Taxact 2007   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. Taxact 2007    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. Taxact 2007 If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Taxact 2007   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. Taxact 2007 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. Taxact 2007 You do not have to keep records to show the specific hours the area was used for business. Taxact 2007 You can use the area occasionally for personal reasons. Taxact 2007 However, a room you use only occasionally for business does not qualify for the deduction. Taxact 2007 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. Taxact 2007 You can compare the hours of business use in a week with the number of hours in a week (168). Taxact 2007 Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Taxact 2007 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. Taxact 2007 Example 1. Taxact 2007 Mary Lake used her basement to operate a daycare business for children. Taxact 2007 She figures the business percentage of the basement as follows. Taxact 2007 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. Taxact 2007 During the other 12 hours a day, the family could use the basement. Taxact 2007 She figures the percentage of time the basement was used for daycare as follows. Taxact 2007 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. Taxact 2007 25%           Mary can deduct 34. Taxact 2007 25% of any direct expenses for the basement. Taxact 2007 However, because her indirect expenses are for the entire house, she can deduct only 17. Taxact 2007 13% of the indirect expenses. Taxact 2007 She figures the percentage for her indirect expenses as follows. Taxact 2007 Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Taxact 2007 25% Percentage for indirect expenses 17. Taxact 2007 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. Taxact 2007 In Part II, Mary figures her deductible expenses. Taxact 2007 She uses the following information to complete Part II. Taxact 2007 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. Taxact 2007 (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Taxact 2007 ) The expenses she paid for rent and utilities relate to her entire home. Taxact 2007 Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Taxact 2007 She shows the total of these expenses on line 22, column (b). Taxact 2007 For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Taxact 2007 Mary paid $500 to have the basement painted. Taxact 2007 The painting is a direct expense. Taxact 2007 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. Taxact 2007 25% – line 6). Taxact 2007 She enters $171 (34. Taxact 2007 25% × $500) on line 19, column (a). Taxact 2007 She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Taxact 2007 This is less than her deduction limit (line 15), so she can deduct the entire amount. Taxact 2007 She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Taxact 2007 She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Taxact 2007 Example 2. Taxact 2007 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. Taxact 2007 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. Taxact 2007 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. Taxact 2007 The basement and room are 60% of the total area of her home. Taxact 2007 In figuring her expenses, 34. Taxact 2007 25% of any direct expenses for the basement and room are deductible. Taxact 2007 In addition, 20. Taxact 2007 55% (34. Taxact 2007 25% × 60%) of her indirect expenses are deductible. Taxact 2007 Example 3. Taxact 2007 Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Taxact 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. Taxact 2007 During the other 12 hours a day, the family could still use the basement. Taxact 2007 She figures the percentage of time the basement was used for business as follows. Taxact 2007 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. Taxact 2007 71%           Mary can deduct 35. Taxact 2007 71% of any direct expenses for the basement. Taxact 2007 However, because her indirect expenses are for the entire house, she can deduct only 17. Taxact 2007 86% of the indirect expenses. Taxact 2007 She figures the percentage for her indirect expenses as follows. Taxact 2007 Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Taxact 2007 71% Percentage for indirect expenses 17. Taxact 2007 86% Meals. Taxact 2007   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Taxact 2007 Claim it as a separate deduction on your Schedule C (Form 1040). Taxact 2007 You can never deduct the cost of food consumed by you or your family. Taxact 2007 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. Taxact 2007 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. Taxact 2007 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. Taxact 2007   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Taxact 2007   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. Taxact 2007 If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Taxact 2007 If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Taxact 2007 Do not include payments or expenses for your own children if they are eligible for the program. Taxact 2007 Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Taxact 2007 Standard meal and snack rates. Taxact 2007   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. Taxact 2007 For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Taxact 2007 Family daycare is childcare provided to eligible children in the home of the family daycare provider. Taxact 2007 The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Taxact 2007 Eligible children are minor children receiving family daycare in the home of the family daycare provider. Taxact 2007 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. Taxact 2007 Eligible children do not include children who receive daycare services for personal reasons of the provider. Taxact 2007 For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Taxact 2007   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. Taxact 2007 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. Taxact 2007 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. Taxact 2007   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. Taxact 2007 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. Taxact 2007 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. Taxact 2007   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. Taxact 2007 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. Taxact 2007 This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Taxact 2007   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. Taxact 2007 These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Taxact 2007     Table 3. Taxact 2007 Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an