How to Claim The Exclusive Use Rule

Which of the following rooms can a family child care provider claim under the exclusive use rule?

A) A downstairs room where day care children play that also contains a coat closet that the child care provider's family uses.

B) A remodeled garage that is turned into a children's play room. The child care provider has no children of her own living at home.

C) A children's play room that is by the day care children. The child care provider has young children of her own that use the room only during child care hours.

Answer: B and C.

Family child care providers can substantially increase their Time-Space Percentage (T/S%) if they have one or more rooms that are exclusively used for their business. An exclusive use room is a room that is never, ever used personally. This is a strict rule. If you use the room even once during the year for personal purposes, you cannot take advantage of this rule. Don't try to use this rule unless you are absolutely certain you qualify.

Here's an example of how this rule works.

Let's say your home is 2,000 square feet and you have an exclusive use room that is 200 square feet. The rest of the home is regularly used for your business. Your Time Percent is 40%.

Step One: Calculate the business use percentage of the exclusive use room:200 square feet divided by 2,000 square feet = 10%

Step Two: Calculate the T/S% of the rest of the home:1,800 square feet of regular use space divided by 2,000 square feet = 90% Space90% Space x 40% Time = 36%Step Three: Add the totals from Step One and Two together:10% + 36% = 46%  T/S%

Note: If you had used the 200 square foot room only regularly for your business, your T/S% would have been 40% (100% Space x 40% Time).

Applying the exclusive use room increased your T/S% by 6%, which is significant!

The Instructions to IRS Form 8829 tells child care providers to do this calculation on a separate piece of paper and then attach it to the form. Enter the T/S% on line 7 of Form 8829.Family child care providers are the only home-based business that can have both regular use rooms and exclusive use rooms. If you have such a room, be sure to take advantage of it as this will significantly decrease your taxes.

Take pictures of the room to help you prove that you had an exclusive use room if you are audited. If you have young children of your own take pictures of your children's bedrooms and toys so the auditor can see that they do not need to enter the exclusive use room after the day care children are gone.

For a comprehensive discussion of the T/S% see my book  Family Child Care Record-Keeping Guide.

Tom Copeland - www.tomcopelandbloglcom

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