The time-and-space method
In-home providers can allocate a portion of mortgage interest, utilities, depreciation, insurance, and repairs to the daycare business based on: the percentage of the home used for daycare, multiplied by the percentage of total hours the home is used for daycare.
The daycare exception to exclusive use
Home offices normally require exclusive business use of the space. Licensed daycare providers get an exception: rooms used regularly for daycare count even though the family uses them evenings and weekends, allocated through the time-space percentage. It's one of the most generous home-use rules in the code, and it's specific to licensed and license-exempt providers.
Hours that count toward time-space
The hour count isn't limited to when children are present. Time spent cleaning up after the kids leave, preparing meals and activities, and doing daycare recordkeeping in the home all counts toward the business-use hours. Providers who only count child-contact hours understate the percentage and overpay every year.
CACFP and food program income
Reimbursements from the Child and Adult Care Food Program (CACFP) are reportable income. The standard meal and snack rate method lets providers deduct a per-meal amount in lieu of tracking actual food costs.
Licensing and insurance
Florida state licensing fees, FDLE background checks, required continuing education, liability insurance, and supplies (toys, cribs, car seats) are all ordinary business expenses.
Depreciation and selling the home later
Claiming home depreciation through time-space reduces tax now but gets recaptured when the home eventually sells. It's still usually worth claiming: the recapture rate is capped and the deduction today is worth more than the cost later for most providers. We keep the accumulated depreciation schedule so the sale year holds no surprises.
Common questions
- Do I need to file a Schedule C?
- Yes, home daycare operators file Schedule C even though the business runs from their home.
- Can I deduct food expenses?
- Yes. Most providers use the standard meal and snack rates from USDA, which eliminates the need to itemize food receipts.
- Do hours spent cleaning and prepping count?
- Yes. Regular hours the home is used for any daycare purpose count toward the time-space calculation, including prep, cleanup, and recordkeeping, not just the hours children are present.
- What happens to my home sale exclusion?
- The Section 121 exclusion still applies to the home itself, but depreciation claimed after May 1997 is recaptured at sale. We track the schedule so it's a known number, not a shock.
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