Family Daycare Taxes 2026: Form 8829's Time-Space Percentage, Line by Line

§1One job, one tax year, one percentage

The job is family daycare: a licensed provider caring for children in her own home, a sole proprietor with one Schedule C. The year is 2026. The form is Form 8829, Expenses for Business Use of Your Home — and the whole form turns on one number built at the top of it, in Part I: the business percentage on line 7.

Every other home-business article on this site meets Form 8829 through the exclusive-use door — a room the business owns outright, or nothing. Daycare never passes that door. The instructions print a separate doorway for it, headed "Daycare Facilities," and the doorway is wider: space used regularly for daycare counts even though the family uses the same space the rest of the day. In exchange, the form takes a second measurement no other filer makes — the time the space spends being a daycare — and multiplies the two together. That product, space percentage times time percentage, is the time-space percentage, and Part II of the form spends it, expense by expense, down to a single total that lands on Schedule C, line 30. This article reads Part I line by line, then follows the percentage through Part II to that landing.

§2The doorway: regular use is enough, and a license condition stands in it

The "Daycare Facilities" paragraph of the Instructions for Form 8829 states the exception in its first sentence: if you use space in your home on a regular basis in the trade or business of providing daycare, you may be able to deduct the business expenses even though you use the same space for nonbusiness purposes. The living room that is a daycare from seven to six and a family's room after dinner is not disqualified by the evening. Exclusive use — the test the rest of Form 8829 is built on — is simply not the test here.

The paragraph prints one condition in its place, and it is a condition about the provider's standing under state law, not about the house. To qualify for the exception, the provider must have applied for a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law and not have been rejected; or have been granted one and still have it in effect; or be exempt from having one. Applied-and-not-rejected, granted-and-in-effect, or exempt: one of the three postures has to be true. What any state's licensing rules themselves require is state law, and state law is outside this site — the federal form states the condition in those three postures and no further.

§3Part I, lines 1–3: the space percentage

Part I opens with the same two area lines it asks every filer, but line 1's caption is written for this page's reader. Line 1 takes the area used regularly and exclusively for business, regularly for daycare, or for storage of inventory or product samples — the daycare branch of the caption is the middle one: regularly for daycare. Line 2 takes the total area of the home. The instructions add one freedom to both lines: square feet are the usual measure, but any reasonable method that accurately figures the percentage may be used. Line 3 divides line 1 by line 2 and enters the result as a percentage — the space percentage.

Below line 3 the form prints its routing sentence, and the sentence is the fork this article exists for: "For daycare facilities not used exclusively for business, go to line 4. All others, go to line 7." A daycare whose rooms are also the family's rooms does not carry its space percentage straight to line 7. It goes to line 4 first, to have the percentage reduced by time.

§4Part I, lines 4–6: the time percentage

Line 4 is captioned in days and hours: multiply the days used for daycare during the year by the hours used per day. The instructions say the same thing as a total: enter the total number of hours the facility was used for daycare during the year. Their own worked example builds it exactly that way — a home used Monday through Friday for 12 hours a day for 250 days, plus 50 Saturdays at 8 hours a day, enters 3,400 hours on line 4: 3,000 weekday hours plus 400 Saturday hours. (That example is the instructions' example, quoted as theirs; this article's own example is built below.)

Line 5 is the year's total hours, and the form prints the full-year figure on its face: 8,760 — 24 hours times 365 days. But the instructions fence that figure with the part-year rule, in words that leave no room for the blind default: if you started or stopped using your home for daycare during the year, you must prorate the number of hours based on the number of days the home was available for daycare. Do not enter 8,760. Instead, multiply 24 hours by the number of days available and enter the result. A provider who opened in July divides by roughly half a year, not by the whole one.

Line 6 divides line 4 by line 5 and enters the result as a decimal amount — the time percentage.

§5Line 7: the two percentages multiply

Line 7 is captioned "Business percentage," and its instruction completes the fork: for daycare facilities not used exclusively for business, multiply line 6 by line 3 and enter the result as a percentage. All others — including a daycare space that is used exclusively — enter the amount from line 3, their space percentage standing alone.

So the time-space percentage is not a third measurement. It is the space percentage, discounted by the share of the year's hours the space actually spent as a daycare. Every expense line in Part II that needs a business share takes it from line 7.

One layout stands beside the printed lines, and the instructions name it for providers whose home mixes both kinds of space — some rooms used exclusively for the daycare, others used only partly. That filer cannot figure the business percentage using Part I. The Special Computation in the instructions prints three steps instead: figure the business percentage of the exclusively used part (its area over the home's total area); figure the business percentage of the partly used part by the Part I method, with only that part's area on line 1 of the computation; add the two percentages and enter the sum on line 7 — with a statement attached showing the computation, and "See attached computation" entered directly above the percentage on line 7. That mixed case is the fork article's ground (Article 27); the worked example below stays on the printed lines, with one regularly used, non-exclusive space.

§6Part II: where line 7 is spent

Part II figures the allowable deduction, and it is built as a limit with expenses tested against it — not as a simple multiplication.

Line 8 is the limit's base. It takes the amount from Schedule C, line 29 — the business's tentative profit, figured before the home-use deduction itself — plus any gain derived from the business use of the home, minus any loss from the business not derived from that use. The home-use deduction can never exceed what this base, worked down through the lines below, leaves standing; the form's arithmetic is what keeps the deduction from creating or increasing a Schedule C loss.

Lines 9–11 take the first tier of expenses, in two columns. Before those lines, the instructions draw the distinction the columns stand for: direct expenses benefit only the business part of the home — painting the daycare room itself is their example — and are entered at 100 percent in column (a); indirect expenses are for keeping up and running the entire home, benefit both parts, and are entered in column (b). The first tier is the three lines whose expenses would have been deductible as personal expenses anyway: line 9, casualty losses; line 10, deductible mortgage interest; line 11, real estate taxes. Line 12 adds each column. Line 13 multiplies line 12, column (b), by line 7 — the indirect share of this tier, priced at the time-space percentage. Line 14 adds line 12, column (a), and line 13: the first tier's allowable amount. Line 15 subtracts line 14 from line 8 — what is left of the limit.

Lines 16–22 take the second tier — operating expenses. Line 16, excess mortgage interest; line 17, excess real estate taxes; line 18, insurance; line 19, rent; line 20, repairs and maintenance; line 21, utilities; line 22, other expenses. Line 23 adds them by column. Line 24 multiplies line 23, column (b), by line 7. Line 25 reads in any carryover of prior-year operating expenses. Line 26 adds line 23, column (a), line 24, and line 25. Line 27 — allowable operating expenses — takes the smaller of line 15 or line 26: the second tier is allowed up to what the limit has left, and no further.

Lines 28–33 repeat the smaller-of pattern for the third tier — excess casualty losses and depreciation: line 28 is line 15 minus line 27, the limit still standing; lines 29–31 build the tier (excess casualty losses, depreciation of the home from Part III, and the prior-year carryover of the same); line 32 adds them; line 33 takes the smaller of line 28 or line 32.

Lines 34–36 land the form. Line 34 adds lines 14, 27, and 33 — the three tiers' allowed amounts. Line 35 takes out any casualty-loss portion, which is carried to Form 4684 instead. Line 36, allowable expenses for business use of the home, subtracts line 35 from line 34 — and the form prints the landing in line 36's own caption: enter here and on Schedule C, line 30.

And whatever the limit refused is not lost on the page. Part IV, Carryover of Unallowed Expenses, holds it in two lines: line 43, operating expenses — line 26 minus line 27 — and line 44, excess casualty losses and depreciation — line 32 minus line 33. Those are the figures a later year's line 25 and line 31 read back in. One boundary the instructions print beside Part II deserves its own sentence, because providers reach for this form with every household-adjacent cost in hand: expenses not allocable to the business use of the home — the instructions name salaries, supplies, and advertising — are deductible elsewhere on Schedule C and should not be entered on Form 8829 at all. The form spends its percentage on the home's expenses only. The same instructions add the part-year limit from the other side: a filer who did not operate the business for the entire year can deduct only the expenses paid or incurred for the portion of the year the home was used for business.

§7Worked example: one provider, the printed lines only

One worked example, with numbers used only in this article. Our provider is licensed, in her second year, caring for children in her own home. The care space is her living room and dining room — used for daycare every care day, and her family's rooms every evening: regular use, not exclusive. These are hypothetical figures, not a prediction and not your numbers.

Her year on Part I. The two rooms measure 828 square feet; the whole home is 1,840 square feet. Line 3 is 828 divided by 1,840 — a space percentage of 45 percent. She provided care on 219 days, with children in the home 12 hours a day: line 4 is 219 times 12 — 2,628 hours. She operated the full year, so line 5 is the printed 8,760. Line 6 is 2,628 divided by 8,760 — 0.30, a time percentage of 30 percent. Line 7 multiplies them: 45 percent times 30 percent — a business percentage of 13.5 percent.

Her Schedule C, line 29 tentative profit — the figure line 8 reads in — is $38,400. Her first tier: deductible mortgage interest of $9,600 on line 10 and real estate taxes of $3,840 on line 11, both indirect, both in column (b); line 9 is zero. Line 12, column (b), is $13,440. Line 13 prices the indirect share at line 7: $13,440 times 13.5 percent — $1,814.40. Line 14 is $1,814.40. Line 15 leaves $38,400 minus $1,814.40 — $36,585.60 of the limit standing.

Her second tier: she repainted the two care rooms for $640 — a direct expense, column (a) of line 20, repairs and maintenance. Her home insurance of $1,150 stands on line 18 and her utilities of $4,260 on line 21, both indirect. Line 23 is $640 in column (a) and $5,410 in column (b). Line 24 is $5,410 times 13.5 percent — $730.35. She has no prior-year carryover, so line 25 is zero and line 26 is $640 plus $730.35 — $1,370.35. Line 27 takes the smaller of line 15 and line 26: $1,370.35, allowed in full — the limit never binds in her year. She claims no casualty losses and figures no depreciation in this walk, so the third tier stands at zero and line 33 is zero. Line 34 adds the tiers: $1,814.40 plus $1,370.35 — $3,184.75. Line 35 is zero. Line 36 is $3,184.75, and it goes to Schedule C, line 30. Part IV's carryovers, lines 43 and 44, both stand at zero — shown, as the form shows them, even when they hold nothing.

What her percentage did is visible in the two priced lines: the same 13.5 percent that Part I built is the only share of her mortgage interest, taxes, insurance, and utilities the form allows — while the $640 spent on the care rooms alone came through at 100 percent, in column (a), untouched by it. That asymmetry is the form's design, not a preference: direct expenses are already entirely the business's; indirect expenses are the home's, and line 7 is the home's business share.

§8What the percentage is not

It is not the simplified method. Publication 587 prints a simplified door for daycare too — $5 a square foot, capped — but the daycare version of that door carries its own reduction, worked on a Daycare Facility Worksheet, and the tip the publication prints beside it (at least 300 square feet used regularly and exclusively, and the reduction falls away) belongs to that worksheet, not to Form 8829. Article 27 reads that fork in full; this article's walk never leaves the regular method's printed lines.

It is not Article 9's home-office percentage either. The designer in Article 9 takes her line 30 through the same form's front door — exclusive use, a space percentage standing alone at line 7 — and the two computations share nothing but the form's number. A daycare percentage is a space percentage after a time percentage has discounted it, and the discount is the whole mechanic.

And the percentage never travels off the form. It prices the home's expenses inside Part II; it is not applied to the daycare's other costs, which take their own Schedule C lines (Article 24), and it is not a share of the provider's income. Line 7 is a percentage of a house. The form spends it on the house's expenses, lands what survives on Schedule C, line 30 — and stops.

The percentage's fork — where daycare breaks the home-office rules Article 9 reads: the exclusive-use exception and the reduced simplified method. Article 27

The same Schedule C's income side — parent fees, food-program money, and the standard meal rates. Article 24