If you run an in-home daycare or family child care business, using part of your home for the business means you can deduct a portion of your household expenses on your business tax return. But how do you figure out the right percentage of your home that qualifies as a business expense? This post breaks down the math, the IRS rules, and tips to ensure you’re maximizing your deductions while staying compliant.
What Is the Daycare Home Expense Percentage?
The “home expense percentage” refers to the share of your home’s expenses you can reasonably claim as business-related because that space is regularly used for daycare operations. It applies to indirect costs like utilities, insurance, rent/mortgage interest, repairs, and depreciation — essentially the part of home expenses that supports your business activities. To claim these, you’ll need to calculate the portion of total home costs that relate to your daycare use. IRS
The IRS addresses this as part of the business use of your home rules in Publication 587. IRS
Two Key Methods for Calculating Your Percentage
There are two common methods to determine your home expense percentage for daycare:
1. The Regular (Actual Expense) Method
Step 1 — Measure Space:
Measure the square footage used for your daycare (play area, bedrooms used for naps, storage for toys/supplies, etc.) and divide it by the total square footage of your home.
Example:
Daycare area = 500 sq. ft.
Total home area = 2,000 sq. ft.
Space percentage = 500 ÷ 2000 = 25%
Step 2 — Adjust for Time Use:
If the space is used for business only at certain times, you would also factor in time-based usage. Some IRS guidance suggests combining both space and time to find a time-space percentage. Advocates for Children of New Jersey
Step 3 — Apply to Expenses:
Multiply your total household costs (utilities, rent/mortgage interest, insurance, repairs, etc.) by this percentage to find the deductible share.
This method requires good records, but it often yields a larger deduction than the simplified option. IRS
2. The Simplified Method
The IRS also offers a simpler way to calculate home business deductions:
✔ $5 per square foot of business-use space,
✔ Up to 300 square feet max (i.e., maximum deduction of $1,500). IRS
While this doesn’t calculate the true share of your actual costs, it’s easier — and useful if you want to reduce recordkeeping.
Special Daycare Rules
For daycare businesses, exclusive use isn’t always required in the same way it is for other home offices. If your home is regularly used during approved business hours (e.g., caring for children most weekdays), you can often prorate costs without needing the daycare space to be used exclusively for business. That means a living room play area or a kitchen eating space used primarily for daycare during business hours can count. Intuit TurboTax Community
Recordkeeping Tips for Tax Time
- Track your measurements — keep a sketch or notes showing how you calculated square footage.
- Save receipts & bills — utilities, insurance, repairs, rent or mortgage interest.
- Log daycare hours — if part of your calculation uses time-based adjustments.
- Consistency matters — choose one method each year and document your choice.
Accurate tracking not only maximizes your deduction but also protects you in case of IRS questions.
Partner With JC Tax Services & J & C Financial Services
Figuring out your daycare home expense percentage can be confusing — and costly if done incorrectly. At JC Tax Services, we specialize in tax preparation and advisory services for home-based business owners like daycare providers, helping you calculate your deductible home expense percentage accurately and strategically. For year-round bookkeeping, analysis, and financial guidance, J & C Financial Services provides the support you need to keep organized and compliant through tax season and beyond.
👉 Let us help you take the guesswork out of your taxes so you can focus on providing great care.
FAQ
What is the daycare home expense percentage, and how is it calculated?
The daycare home expense percentage is the share of your home’s expenses that can be claimed as business-related because that space is regularly used for daycare operations. It is calculated by measuring the square footage used for daycare and dividing it by the total square footage of your home, then adjusting based on time use if necessary.
What are the two main methods to determine my home expenses for daycare deductions?
The two main methods are the regular (actual expense) method, which involves measuring the space used and adjusting for time, and the simplified method, where you multiply the square footage by $5, up to a maximum of 300 square feet.
What is the simplified method for calculating home office deductions for daycare?
The simplified method allows you to deduct $5 per square foot of business-use space, up to 300 square feet, for a maximum deduction of $1,500, making recordkeeping easier.
Do daycare providers need to use their space exclusively for business to claim home expenses?
No, daycare providers do not need to use the space exclusively for business if the home is regularly used during approved business hours, allowing prorated costs for spaces like living rooms or kitchens used primarily for daycare during those hours.
What recordkeeping tips are recommended for daycare home expense deductions?
It is recommended to keep a sketch or notes of the space measurements, save receipts and bills for utilities and repairs, log daycare hours if time adjustments are used, and choose one method annually while documenting it to ensure accurate deductions and IRS compliance.
Works Cited / Resources
- IRS Publication 587 — Business Use of Your Home (Daycare Rules). IRS.gov. IRS
- IRS Topic No. 509 — Business Use of Your Home. IRS.gov. IRS
- IRS Simplified Option for Home Office Deduction. IRS.gov. IRS
- Daycare Expense Time-Space Percentage Example. ACNJ.org (time-space method). Advocates for Children of New Jersey
- Daycare Deduction Partial Expenses Explained. BlockAdvisors.com. blockadvisors.com
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