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Corporate Tax Software

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Corporate Tax Software

Corporate tax software 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. Corporate tax software 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. Corporate tax software However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Corporate tax software Even then, the deductible amount of these types of expenses may be limited. Corporate tax software Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Corporate tax software 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). Corporate tax software Additional tests for employee use. Corporate tax software   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. Corporate tax software 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. Corporate tax software If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Corporate tax software Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Corporate tax software The area used for business can be a room or other separately identifiable space. Corporate tax software The space does not need to be marked off by a permanent partition. Corporate tax software 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. Corporate tax software Example. Corporate tax software You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Corporate tax software Your family also uses the den for recreation. Corporate tax software The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Corporate tax software Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Corporate tax software You use part of your home for the storage of inventory or product samples (discussed next). Corporate tax software You use part of your home as a daycare facility, discussed later under Daycare Facility . Corporate tax software Note. Corporate tax software With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Corporate tax software Storage of inventory or product samples. Corporate tax software    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. Corporate tax software However, you must meet all the following tests. Corporate tax software You sell products at wholesale or retail as your trade or business. Corporate tax software You keep the inventory or product samples in your home for use in your trade or business. Corporate tax software Your home is the only fixed location of your trade or business. Corporate tax software You use the storage space on a regular basis. Corporate tax software The space you use is a separately identifiable space suitable for storage. Corporate tax software Example. Corporate tax software Your home is the only fixed location of your business of selling mechanics' tools at retail. Corporate tax software You regularly use half of your basement for storage of inventory and product samples. Corporate tax software You sometimes use the area for personal purposes. Corporate tax software The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Corporate tax software Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Corporate tax software Incidental or occasional business use is not regular use. Corporate tax software You must consider all facts and circumstances in determining whether your use is on a regular basis. Corporate tax software 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. Corporate tax software 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. Corporate tax software Example. Corporate tax software 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. Corporate tax software You do not make investments as a broker or dealer. Corporate tax software So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Corporate tax software Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Corporate tax software 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. Corporate tax software 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. Corporate tax software Your home office will qualify as your principal place of business if you meet the following requirements. Corporate tax software You use it exclusively and regularly for administrative or management activities of your trade or business. Corporate tax software You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Corporate tax software If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Corporate tax software 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. Corporate tax software Administrative or management activities. Corporate tax software   There are many activities that are administrative or managerial in nature. Corporate tax software The following are a few examples. Corporate tax software Billing customers, clients, or patients. Corporate tax software Keeping books and records. Corporate tax software Ordering supplies. Corporate tax software Setting up appointments. Corporate tax software Forwarding orders or writing reports. Corporate tax software Administrative or management activities performed at other locations. Corporate tax software   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Corporate tax software You have others conduct your administrative or management activities at locations other than your home. Corporate tax software (For example, another company does your billing from its place of business. Corporate tax software ) 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. Corporate tax software You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Corporate tax software You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Corporate tax software (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Corporate tax software ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Corporate tax software Please click here for the text description of the image. Corporate tax software Can you deduct business use of the home expenses? Example 1. Corporate tax software John is a self-employed plumber. Corporate tax software Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Corporate tax software 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. Corporate tax software John writes up estimates and records of work completed at his customers' premises. Corporate tax software He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Corporate tax software John does not do his own billing. Corporate tax software He uses a local bookkeeping service to bill his customers. Corporate tax software John's home office qualifies as his principal place of business for deducting expenses for its use. Corporate tax software 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. Corporate tax software His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Corporate tax software 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. Corporate tax software Example 2. Corporate tax software Pamela is a self-employed sales representative for several different product lines. Corporate tax software 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. Corporate tax software She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Corporate tax software Pamela's business is selling products to customers at various locations throughout her territory. Corporate tax software To make these sales, she regularly visits customers to explain the available products and take orders. Corporate tax software Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Corporate tax software She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Corporate tax software 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. Corporate tax software 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. Corporate tax software Example 3. Corporate tax software Paul is a self-employed anesthesiologist. Corporate tax software He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Corporate tax software One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Corporate tax software Paul very rarely uses the office the hospital provides. Corporate tax software He uses a room in his home that he has converted to an office. Corporate tax software He uses this room exclusively and regularly to conduct all the following activities. Corporate tax software Contacting patients, surgeons, and hospitals regarding scheduling. Corporate tax software Preparing for treatments and presentations. Corporate tax software Maintaining billing records and patient logs. Corporate tax software Satisfying continuing medical education requirements. Corporate tax software Reading medical journals and books. Corporate tax software Paul's home office qualifies as his principal place of business for deducting expenses for its use. Corporate tax software 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. Corporate tax software 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. Corporate tax software 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. Corporate tax software 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. Corporate tax software Example 4. Corporate tax software Kathleen is employed as a teacher. Corporate tax software She is required to teach and meet with students at the school and to grade papers and tests. Corporate tax software 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. Corporate tax software The school does not require her to work at home. Corporate tax software Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Corporate tax software She uses this home office exclusively and regularly for the administrative duties of her teaching job. Corporate tax software 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. Corporate tax software 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. Corporate tax software More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Corporate tax software 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. Corporate tax software You must use the home office exclusively and regularly for one or more of the following purposes. Corporate tax software As the principal place of business for one or more of your trades or businesses. Corporate tax software 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. Corporate tax software If your home office is a separate structure, in connection with one or more of your trades or businesses. Corporate tax software You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Corporate tax software e. Corporate tax software , personal) activities. Corporate tax software If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Corporate tax software See Rental to employer , later, if you rent part of your home to your employer. Corporate tax software Example. Corporate tax software Tracy White is employed as a teacher. Corporate tax software Her principal place of work is the school, which provides her office space to do her school work. Corporate tax software She also has a mail order jewelry business. Corporate tax software All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Corporate tax software If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Corporate tax software 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. Corporate tax software As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Corporate tax software 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. Corporate tax software 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. Corporate tax software You physically meet with patients, clients, or customers on your premises. Corporate tax software Their use of your home is substantial and integral to the conduct of your business. Corporate tax software Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Corporate tax software Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Corporate tax software 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. Corporate tax software Example. Corporate tax software June Quill, a self-employed attorney, works 3 days a week in her city office. Corporate tax software She works 2 days a week in her home office used only for business. Corporate tax software She regularly meets clients there. Corporate tax software Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Corporate tax software 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. Corporate tax software The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Corporate tax software Example. Corporate tax software John Berry operates a floral shop in town. Corporate tax software He grows the plants for his shop in a greenhouse behind his home. Corporate tax software 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. Corporate tax software 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. Corporate tax software 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. Corporate tax software Electing to use the simplified method. Corporate tax software   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Corporate tax software You choose whether or not to figure your deduction using the simplified method each taxable year. Corporate tax software See Using the Simplified Method , later. Corporate tax software Rental to employer. Corporate tax software   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. Corporate tax software You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Corporate tax software 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. Corporate tax software 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. Corporate tax software You will also need to figure the percentage of your home used for business and the limit on the deduction. Corporate tax software 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. Corporate tax software 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. Corporate tax software Part-year use. Corporate tax software   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. Corporate tax software 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. Corporate tax software Expenses related to tax-exempt income. Corporate tax software   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Corporate tax software 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. Corporate tax software No deduction is allowed for other expenses related to the tax-exempt allowance. Corporate tax software   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. Corporate tax software Actual Expenses You must divide the expenses of operating your home between personal and business use. Corporate tax software The part of a home operating expense you can use to figure your deduction depends on both of the following. Corporate tax software Whether the expense is direct, indirect, or unrelated. Corporate tax software The percentage of your home used for business. Corporate tax software Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Corporate tax software Table 1. Corporate tax software Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Corporate tax software Deductible in full. Corporate tax software *   Examples:  Painting or repairs  only in the area  used for business. Corporate tax software Exception: May be only partially  deductible in a daycare facility. Corporate tax software See Daycare Facility , later. Corporate tax software Indirect Expenses for  keeping up and running your  entire home. Corporate tax software Deductible based on the percentage of your home used for business. Corporate tax software *   Examples:  Insurance, utilities, and  general repairs. Corporate tax software   Unrelated Expenses only for  the parts of your  home not used  for business. Corporate tax software Not deductible. Corporate tax software   Examples:  Lawn care or painting  a room not used  for business. Corporate tax software   *Subject to the deduction limit, discussed later. Corporate tax software Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Corporate tax software Certain expenses are deductible whether or not you use your home for business. Corporate tax software 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. Corporate tax software These expenses include the following. Corporate tax software Real estate taxes. Corporate tax software Qualified mortgage insurance premiums. Corporate tax software Deductible mortgage interest. Corporate tax software Casualty losses. Corporate tax software Other expenses are deductible only if you use your home for business. Corporate tax software You can use the business percentage of these expenses to figure your total business use of the home deduction. Corporate tax software These expenses generally include (but are not limited to) the following. Corporate tax software Depreciation (covered under Depreciating Your Home , later). Corporate tax software Insurance. Corporate tax software Rent paid for the use of property you do not own but use in your trade or business. Corporate tax software Repairs. Corporate tax software Security system. Corporate tax software Utilities and services. Corporate tax software Real estate taxes. Corporate tax software   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. Corporate tax software   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Corporate tax software Deductible mortgage interest. Corporate tax software   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Corporate tax software You can include interest on a second mortgage in this computation. Corporate tax software 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. Corporate tax software For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Corporate tax software Qualified mortgage insurance premiums. Corporate tax software   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Corporate tax software You can include premiums for insurance on a second mortgage in this computation. Corporate tax software 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. Corporate tax software For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Corporate tax software Casualty losses. Corporate tax software    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. Corporate tax software A direct expense is the loss on the portion of the property you use only in your business. Corporate tax software Use the entire loss to figure the business use of the home deduction. Corporate tax software An indirect expense is the loss on property you use for both business and personal purposes. Corporate tax software Use only the business portion to figure the deduction. Corporate tax software An unrelated expense is the loss on property you do not use in your business. Corporate tax software Do not use any of the loss to figure the deduction. Corporate tax software Example. Corporate tax software You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Corporate tax software A storm damages your roof. Corporate tax software 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. Corporate tax software You would complete Form 4684, Casualties and Thefts, to report your loss. Corporate tax software 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. Corporate tax software 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. Corporate tax software 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. Corporate tax software Forms and worksheets to use. Corporate tax software   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Corporate tax software 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. Corporate tax software You will also need to get Form 4684. Corporate tax software More information. Corporate tax software   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Corporate tax software Insurance. Corporate tax software   You can deduct the cost of insurance that covers the business part of your home. Corporate tax software 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. Corporate tax software You can deduct the business percentage of the part that applies to the following year in that year. Corporate tax software Rent. Corporate tax software   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. Corporate tax software To figure your deduction, multiply your rent payments by the percentage of your home used for business. Corporate tax software   If you own your home, you cannot deduct the fair rental value of your home. Corporate tax software However, see Depreciating Your Home , later. Corporate tax software Repairs. Corporate tax software   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Corporate tax software For example, a furnace repair benefits the entire home. Corporate tax software If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Corporate tax software   Repairs keep your home in good working order over its useful life. Corporate tax software Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Corporate tax software However, repairs are sometimes treated as a permanent improvement and are not deductible. Corporate tax software See Permanent improvements , later, under Depreciating Your Home. Corporate tax software Security system. Corporate tax software   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. Corporate tax software 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. Corporate tax software Utilities and services. Corporate tax software   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Corporate tax software However, if you use part of your home for business, you can deduct the business part of these expenses. Corporate tax software Generally, the business percentage for utilities is the same as the percentage of your home used for business. Corporate tax software Telephone. Corporate tax software   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Corporate tax software e. Corporate tax software , landline) is a nondeductible personal expense. Corporate tax software 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. Corporate tax software Do not include these expenses as a cost of using your home for business. Corporate tax software Deduct these charges separately on the appropriate form or schedule. Corporate tax software 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). Corporate tax software Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Corporate tax software Depreciation is an allowance for the wear and tear on the part of your home used for business. Corporate tax software You cannot depreciate the cost or value of the land. Corporate tax software You recover its cost when you sell or otherwise dispose of the property. Corporate tax software Before you figure your depreciation deduction, you need to know the following information. Corporate tax software The month and year you started using your home for business. Corporate tax software The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Corporate tax software The cost of any improvements before and after you began using the property for business. Corporate tax software The percentage of your home used for business. Corporate tax software See Business Percentage , later. Corporate tax software Adjusted basis defined. Corporate tax software   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. Corporate tax software For a discussion of adjusted basis, see Publication 551. Corporate tax software Permanent improvements. Corporate tax software   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Corporate tax software Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Corporate tax software    You must carefully distinguish between repairs and improvements. Corporate tax software See Repairs , earlier, under Actual Expenses. Corporate tax software You also must keep accurate records of these expenses. Corporate tax software These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Corporate tax software However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Corporate tax software Example. Corporate tax software You buy an older home and fix up two rooms as a beauty salon. Corporate tax software 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. Corporate tax software Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Corporate tax software 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. Corporate tax software You cannot deduct any portion of it as a repair expense. Corporate tax software Adjusting for depreciation deducted in earlier years. Corporate tax software   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. Corporate tax software 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. Corporate tax software If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Corporate tax software   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. Corporate tax software   If you deducted the incorrect amount of depreciation, see Publication 946. Corporate tax software Fair market value defined. Corporate tax software   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. Corporate tax software 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. Corporate tax software Figuring the depreciation deduction for the current year. Corporate tax software   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Corporate tax software   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). Corporate tax software Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Corporate tax software For more information on MACRS and other methods of depreciation, see Publication 946. Corporate tax software   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Corporate tax software The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Corporate tax software The adjusted basis of your home (excluding land) on the date you began using your home for business. Corporate tax software The fair market value of your home (excluding land) on the date you began using your home for business. Corporate tax software Depreciation table. Corporate tax software   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. Corporate tax software Table 2. Corporate tax software MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Corporate tax software 461% 2 2. Corporate tax software 247% 3 2. Corporate tax software 033% 4 1. Corporate tax software 819% 5 1. Corporate tax software 605% 6 1. Corporate tax software 391% 7 1. Corporate tax software 177% 8 0. Corporate tax software 963% 9 0. Corporate tax software 749% 10 0. Corporate tax software 535% 11 0. Corporate tax software 321% 12 0. Corporate tax software 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. Corporate tax software See Publication 946 for the percentages for the remaining tax years of the recovery period. Corporate tax software Example. Corporate tax software In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Corporate tax software This room is 8% of the square footage of his home. Corporate tax software He bought the home in 2003 for $125,000. Corporate tax software He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Corporate tax software In May, the house had a fair market value of $165,000. Corporate tax software He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Corporate tax software The result is $9,200, his depreciable basis for the business part of the house. Corporate tax software George files his return based on the calendar year. Corporate tax software May is the 5th month of his tax year. Corporate tax software He multiplies his depreciable basis of $9,200 by 1. Corporate tax software 605% (. Corporate tax software 01605), the percentage from the table for the 5th month. Corporate tax software His depreciation deduction is $147. Corporate tax software 66. Corporate tax software Depreciating permanent improvements. Corporate tax software   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Corporate tax software Depreciate these costs as part of the cost of your home as explained earlier. Corporate tax software 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. Corporate tax software 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. Corporate tax software For improvements made this year, the recovery period is 39 years. Corporate tax software For the percentage to use for the first year, see Table 2, earlier. Corporate tax software For more information on recovery periods, see Publication 946. Corporate tax software 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. Corporate tax software Use the resulting percentage to figure the business part of the expenses for operating your entire home. Corporate tax software You can use any reasonable method to determine the business percentage. Corporate tax software The following are two commonly used methods for figuring the percentage. Corporate tax software Divide the area (length multiplied by the width) used for business by the total area of your home. Corporate tax software 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. Corporate tax software Example 1. Corporate tax software Your office is 240 square feet (12 feet × 20 feet). Corporate tax software Your home is 1,200 square feet. Corporate tax software Your office is 20% (240 ÷ 1,200) of the total area of your home. Corporate tax software Your business percentage is 20%. Corporate tax software Example 2. Corporate tax software You use one room in your home for business. Corporate tax software Your home has 10 rooms, all about equal size. Corporate tax software Your office is 10% (1 ÷ 10) of the total area of your home. Corporate tax software Your business percentage is 10%. Corporate tax software 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. Corporate tax software 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. Corporate tax software 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. Corporate tax software 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. Corporate tax software 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)). Corporate tax software These expenses are discussed in detail under Actual Expenses , earlier. Corporate tax software 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. Corporate tax software If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Corporate tax software Carryover of unallowed expenses. Corporate tax software   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. Corporate tax software They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Corporate tax software Figuring the deduction limit and carryover. Corporate tax software   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. Corporate tax software If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Corporate tax software Example. Corporate tax software You meet the requirements for deducting expenses for the business use of your home. Corporate tax software You use 20% of your home for business. Corporate tax software 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. Corporate tax software    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). Corporate tax software You also can deduct all of your business expenses not related to the use of your home ($2,000). Corporate tax software 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. Corporate tax software Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Corporate tax software You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Corporate tax software More than one place of business. Corporate tax software   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. Corporate tax software 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. Corporate tax software 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. Corporate tax software For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Corporate tax software Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Corporate tax software 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. Corporate tax software The area you use to figure your deduction is limited to 300 square feet. Corporate tax software See Simplified Amount , later, for information about figuring the amount of the deduction. Corporate tax software For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Corporate tax software R. Corporate tax software B. Corporate tax software 478, available at www. Corporate tax software irs. Corporate tax software gov/irb/2013-06_IRB/ar09. Corporate tax software html. Corporate tax software Actual expenses and depreciation of your home. Corporate tax software   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. Corporate tax software 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. Corporate tax software The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Corporate tax software 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. Corporate tax software More information. Corporate tax software   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Corporate tax software R. Corporate tax software B. Corporate tax software 478, available at www. Corporate tax software irs. Corporate tax software gov/irb/2013-06_IRB/ar09. Corporate tax software html. Corporate tax software 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). Corporate tax software Expenses deductible without regard to business use. Corporate tax software   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. Corporate tax software These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Corporate tax software See Where To Deduct , later. Corporate tax software 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). Corporate tax software No deduction of carryover of actual expenses. Corporate tax software   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. Corporate tax software Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Corporate tax software Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Corporate tax software 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. Corporate tax software An election for a taxable year, once made, is irrevocable. Corporate tax software 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. Corporate tax software Shared use. Corporate tax software   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. Corporate tax software More than one qualified business use. Corporate tax software   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. Corporate tax software More than one home. Corporate tax software   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. Corporate tax software You must figure the deduction for any other home using actual expenses. Corporate tax software 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. Corporate tax software 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. Corporate tax software The allowable area of your home used in conducting the business. Corporate tax software 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. Corporate tax software The gross income from the business use of your home. Corporate tax software The amount of the business expenses that are not related to the use of your home. Corporate tax software 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. Corporate tax software To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Corporate tax software 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). Corporate tax software See Allowable area and Space used regularly for daycare , later. Corporate tax software 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. Corporate tax software 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. Corporate tax software See Gross income limitation , later. Corporate tax software Take the smaller of the amounts from (1) and (2). Corporate tax software This is the amount you can deduct for this qualified business use of your home using the simplified method. Corporate tax software 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. Corporate tax software 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. Corporate tax software Allowable area. Corporate tax software   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. Corporate tax software 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. Corporate tax software 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. Corporate tax software Area used by a qualified joint venture. Corporate tax software   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. Corporate tax software Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Corporate tax software Then, each spouse will figure the allowable area separately. Corporate tax software For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Corporate tax software Shared use. Corporate tax software   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. Corporate tax software You must allocate the shared space between you and the other person in a reasonable manner. Corporate tax software Example. Corporate tax software Kristin and Lindsey are roommates. Corporate tax software Kristin uses 300 square feet of their home for a qualified business use. Corporate tax software Lindsey uses 200 square feet of their home for a separate qualified business use. Corporate tax software The qualified business uses share 100 square feet. Corporate tax software 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. Corporate tax software If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Corporate tax software More than one qualified business use. Corporate tax software   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. Corporate tax software Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Corporate tax software However, do not allocate more square feet to a qualified business use than you actually use for that business. Corporate tax software Rental use. Corporate tax software   The simplified method does not apply to rental use. Corporate tax software A rental use that qualifies for the deduction must be figured using actual expenses. Corporate tax software 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. Corporate tax software 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. Corporate tax software Part-year use or area changes. Corporate tax software   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. Corporate tax software 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. Corporate tax software When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Corporate tax software Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Corporate tax software Example 1. Corporate tax software Andy files his federal income tax return on a calendar year basis. Corporate tax software On July 20, he began using 420 square feet of his home for a qualified business use. Corporate tax software He continued to use the 420 square feet until the end of the year. Corporate tax software 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). Corporate tax software Example 2. Corporate tax software Amy files her federal income tax return on a calendar year basis. Corporate tax software On April 20, she began using 100 square feet of her home for a qualified business use. Corporate tax software On August 5, she expanded the area of her qualified use to 330 square feet. Corporate tax software Amy continued to use the 330 square feet until the end of the year. Corporate tax software 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). Corporate tax software Gross income limitation. Corporate tax software   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. Corporate tax software 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. Corporate tax software Business expenses not related to use of the home. Corporate tax software   These expenses relate to the business activity in the home, but not to the use of the home itself. Corporate tax software You can still deduct business expenses that are unrelated to the use of the home. Corporate tax software See Where To Deduct , later. Corporate tax software Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Corporate tax software Space used regularly for daycare. Corporate tax software   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. Corporate tax software The reduced rate will equal the prescribed rate times a fraction. Corporate tax software 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. Corporate tax software You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Corporate tax software    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. Corporate tax software 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. Corporate tax software To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Corporate tax software 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. Corporate tax software 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. Corporate tax software You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Corporate tax software Figuring the deduction. Corporate tax software   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. Corporate tax software    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. Corporate tax software If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Corporate tax software   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. Corporate tax software 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. Corporate tax software You do not have to keep records to show the specific hours the area was used for business. Corporate tax software You can use the area occasionally for personal reasons. Corporate tax software However, a room you use only occasionally for business does not qualify for the deduction. Corporate tax software 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. Corporate tax software You can compare the hours of business use in a week with the number of hours in a week (168). Corporate tax software Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Corporate tax software 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. Corporate tax software Example 1. Corporate tax software Mary Lake used her basement to operate a daycare business for children. Corporate tax software She figures the business percentage of the basement as follows. Corporate tax software 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. Corporate tax software During the other 12 hours a day, the family could use the basement. Corporate tax software She figures the percentage of time the basement was used for daycare as follows. Corporate tax software 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. Corporate tax software 25%           Mary can deduct 34. Corporate tax software 25% of any direct expenses for the basement. Corporate tax software However, because her indirect expenses are for the entire house, she can deduct only 17. Corporate tax software 13% of the indirect expenses. Corporate tax software She figures the percentage for her indirect expenses as follows. Corporate tax software Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Corporate tax software 25% Percentage for indirect expenses 17. Corporate tax software 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. Corporate tax software In Part II, Mary figures her deductible expenses. Corporate tax software She uses the following information to complete Part II. Corporate tax software 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. Corporate tax software (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Corporate tax software ) The expenses she paid for rent and utilities relate to her entire home. Corporate tax software Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Corporate tax software She shows the total of these expenses on line 22, column (b). Corporate tax software For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Corporate tax software Mary paid $500 to have the basement painted. Corporate tax software The painting is a direct expense. Corporate tax software 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. Corporate tax software 25% – line 6). Corporate tax software She enters $171 (34. Corporate tax software 25% × $500) on line 19, column (a). Corporate tax software She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Corporate tax software This is less than her deduction limit (line 15), so she can deduct the entire amount. Corporate tax software She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Corporate tax software She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Corporate tax software Example 2. Corporate tax software 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. Corporate tax software 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. Corporate tax software 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. Corporate tax software The basement and room are 60% of the total area of her home. Corporate tax software In figuring her expenses, 34. Corporate tax software 25% of any direct expenses for the basement and room are deductible. Corporate tax software In addition, 20. Corporate tax software 55% (34. Corporate tax software 25% × 60%) of her indirect expenses are deductible. Corporate tax software Example 3. Corporate tax software Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Corporate tax software 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. Corporate tax software During the other 12 hours a day, the family could still use the basement. Corporate tax software She figures the percentage of time the basement was used for business as follows. Corporate tax software 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. Corporate tax software 71%           Mary can deduct 35. Corporate tax software 71% of any direct expenses for the basement. Corporate tax software However, because her indirect expenses are for the entire house, she can deduct only 17. Corporate tax software 86% of the indirect expenses. Corporate tax software She figures the percentage for her indirect expenses as follows. Corporate tax software Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Corporate tax software 71% Percentage for indirect expenses 17. Corporate tax software 86% Meals. Corporate tax software   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Corporate tax software Claim it as a separate deduction on your Schedule C (Form 1040). Corporate tax software You can never deduct the cost of food consumed by you or your family. Corporate tax software 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. Corporate tax software 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. Corporate tax software 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. Corporate tax software   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Corporate tax software   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. Corporate tax software If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Corporate tax software If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Corporate tax software Do not include payments or expenses for your own children if they are eligible for the program. Corporate tax software Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Corporate tax software Standard meal and snack rates. Corporate tax software   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. Corporate tax software For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Corporate tax software Family daycare is childcare provided to eligible children in the home of the family daycare provider. Corporate tax software The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Corporate tax software Eligible children are minor children receiving family daycare in the home of the family daycare provider. Corporate tax software 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. Corporate tax software Eligible children do not include children who receive daycare services for personal reasons of the provider. Corporate tax software For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Corporate tax software   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. Corporate tax software 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. Corporate tax software 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. Corporate tax software   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. Corporate tax software 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. Corporate tax software 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. Corporate tax software   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. Corporate tax software 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. Corporate tax software This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Corporate tax software   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. Corporate tax software These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Corporate tax software     Table 3. Corporate tax software Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an
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Corporate tax software Publication 946 - Additional Material Table of Contents Appendix B — Table of Class Lives and Recovery PeriodsHow To Use the Tables This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Appendix A Please click here for the text description of the image. Corporate tax software Table A-1 and A-2 Please click here for the text description of the image. Corporate tax software Table A-3 and A-4 Please click here for the text description of the image. Corporate tax software Table A-5 and A-6 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-7 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-8 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-8 (continued) This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-9 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-9 (continued) This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-10 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A–10 (continued) This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-11 Please click here for the text description of the image. Corporate tax software Table A-11 (continued) This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-12 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-12 (continued) This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-13, A-14 and A-14 (continued. Corporate tax software 1) Please click here for the text description of the image. Corporate tax software Table A-14 (continued. Corporate tax software 2) Please click here for the text description of the image. Corporate tax software Table A-15 Please click here for the text description of the image. Corporate tax software Table A-15 (continued) Please click here for the text description of the image. Corporate tax software Table A-16 Please click here for the text description of the image. Corporate tax software Table A-16 (continued) This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-17 Please click here for the text description of the image. Corporate tax software Table A-17 (continued) Please click here for the text description of the image. Corporate tax software Table A-18 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-18 (continued) This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table A-19 and Table A-20 Please click here for the text description of the image. Corporate tax software Quality Indian Reservation Property Tables Please click here for the text description of the image. Corporate tax software Qualified Indian Reservation Property Tables 2 Appendix B — Table of Class Lives and Recovery Periods The Table of Class Lives and Recovery Periods has two sections. Corporate tax software The first section, Specific Depreciable Assets Used In All Business Activities, Except As Noted, generally lists assets used in all business activities. Corporate tax software It is shown as Table B-1. Corporate tax software The second section, Depreciable Assets Used In The Following Activities, describes assets used only in certain activities. Corporate tax software It is shown as Table B-2. Corporate tax software How To Use the Tables You will need to look at both Table B-1 and B-2 to find the correct recovery period. Corporate tax software Generally, if the property is listed in Table B-1 you use the recovery period shown in that table. Corporate tax software However, if the property is specifically listed in Table B-2 under the type of activity in which it is used, you use the recovery period listed under the activity in that table. Corporate tax software Use the tables in the order shown below to determine the recovery period of your depreciable property. Corporate tax software Table B-1. Corporate tax software   Check Table B-1 for a description of the property. Corporate tax software If it is described in Table B-1, also check Table B-2 to find the activity in which the property is being used. Corporate tax software If the activity is described in Table B-2, read the text (if any) under the title to determine if the property is specifically included in that asset class. Corporate tax software If it is, use the recovery period shown in the appropriate column of Table B-2 following the description of the activity. Corporate tax software If the activity is not described in Table B-2 or if the activity is described but the property either is not specifically included in or is specifically excluded from that asset class, then use the recovery period shown in the appropriate column following the description of the property in Table B-1. Corporate tax software Tax-exempt use property subject to a lease. Corporate tax software   The recovery period for ADS cannot be less than 125 percent of the lease term for any property leased under a leasing arrangement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership). Corporate tax software Table B-2. Corporate tax software   If the property is not listed in Table B-1, check Table B-2 to find the activity in which the property is being used and use the recovery period shown in the appropriate column following the description. Corporate tax software Property not in either table. Corporate tax software   If the activity or the property is not included in either table, check the end of Table B-2 to find Certain Property for Which Recovery Periods Assigned. Corporate tax software This property generally has a recovery period of 7 years for GDS or 12 years for ADS. Corporate tax software See Which Property Class Applies Under GDS and Which Recovery Period Applies in chapter 4 for the class lives or the recovery periods for GDS and ADS for the following. Corporate tax software Residential rental property and nonresidential real property (also see Appendix A, Chart 2). Corporate tax software Qualified rent-to-own property. Corporate tax software A motorsport entertainment complex placed in service before January 1, 2014. Corporate tax software Any retail motor fuels outlet. Corporate tax software Any qualified leasehold improvement property placed in service before January 1, 2014. Corporate tax software Any qualified restaurant property placed in service before January 1, 2014. Corporate tax software Initial clearing and grading land improvements for gas utility property and electric utility transmission and distribution plants. Corporate tax software Any water utility property. Corporate tax software Certain electric transmission property used in the transmission at 69 or more kilovolts of electricity for sale and placed in service after April 11, 2005. Corporate tax software Natural gas gathering and distribution lines placed in service after April 11, 2005. Corporate tax software Example 1. Corporate tax software Richard Green is a paper manufacturer. Corporate tax software During the year, he made substantial improvements to the land on which his paper plant is located. Corporate tax software He checks Table B-1 and finds land improvements under asset class 00. Corporate tax software 3. Corporate tax software He then checks Table B-2 and finds his activity, paper manufacturing, under asset class 26. Corporate tax software 1, Manufacture of Pulp and Paper. Corporate tax software He uses the recovery period under this asset class because it specifically includes land improvements. Corporate tax software The land improvements have a 13-year class life and a 7-year recovery period for GDS. Corporate tax software If he elects to use ADS, the recovery period is 13 years. Corporate tax software If Richard only looked at Table B-1, he would select asset class 00. Corporate tax software 3, Land Improvements, and incorrectly use a recovery period of 15 years for GDS or 20 years for ADS. Corporate tax software Example 2. Corporate tax software Sam Plower produces rubber products. Corporate tax software During the year, he made substantial improvements to the land on which his rubber plant is located. Corporate tax software He checks Table B-1 and finds land improvements under asset class 00. Corporate tax software 3. Corporate tax software He then checks Table B-2 and finds his activity, producing rubber products, under asset class 30. Corporate tax software 1, Manufacture of Rubber Products. Corporate tax software Reading the headings and descriptions under asset class 30. Corporate tax software 1, Sam finds that it does not include land improvements. Corporate tax software Therefore, Sam uses the recovery period under asset class 00. Corporate tax software 3. Corporate tax software The land improvements have a 20-year class life and a 15-year recovery period for GDS. Corporate tax software If he elects to use ADS, the recovery period is 20 years. Corporate tax software Example 3. Corporate tax software Pam Martin owns a retail clothing store. Corporate tax software During the year, she purchased a desk and a cash register for use in her business. Corporate tax software She checks Table B-1 and finds office furniture under asset class 00. Corporate tax software 11. Corporate tax software Cash registers are not listed in any of the asset classes in Table B-1. Corporate tax software She then checks Table B-2 and finds her activity, retail store, under asset class 57. Corporate tax software 0, Distributive Trades and Services, which includes assets used in wholesale and retail trade. Corporate tax software This asset class does not specifically list office furniture or a cash register. Corporate tax software She looks back at Table B-1 and uses asset class 00. Corporate tax software 11 for the desk. Corporate tax software The desk has a 10-year class life and a 7-year recovery period for GDS. Corporate tax software If she elects to use ADS, the recovery period is 10 years. Corporate tax software For the cash register, she uses asset class 57. Corporate tax software 0 because cash registers are not listed in Table B-1 but it is an asset used in her retail business. Corporate tax software The cash register has a 9-year class life and a 5-year recovery period for GDS. Corporate tax software If she elects to use the ADS method, the recovery period is 9 years. Corporate tax software This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table B-1 Please click here for the text description of the image. Corporate tax software Table B-2 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table B-2 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table B-2 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table B-2 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table B-2 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table B-2 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table B-2 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table B-2 This image is too large to be displayed in the current screen. Corporate tax software Please click the link to view the image. Corporate tax software Table B-2 Tax Publications for Business Taxpayers Prev  Up  Next   Home   More Online Publications