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DOUBLE TAP TO ZOOM WITH PHONE OR TABLET Family Child Care Record-Keeping Guide 2. If Your Family Is Not Living on a Military Base If you aren’t living on a military base, your business won’t have to meet any military licens- ing standards; instead, you’ll be regulated under the local and state regulations. In this case, your housing allowance is not taxable income and does not need to be spent entirely on housing costs (regardless of whether your family rents or owns your home). The IRS Child Care Provider Audit Technique Guide and Military Housing Allowances The IRS Child Care Provider Audit Technique Guide clearly spells out how you can deduct your housing expenses if you are receiving a military housing allowance. If you own your home, you may deduct the Time-Space percentage of your property tax and mortgage interest as business expenses on Form 8829 Expenses for Business Use of Your Home if you meet or are exempt from your local licensing or registration regulations. If you itemize, you can claim the remaining amount on Schedule A Itemized Deductions. This is true even if your housing allowance pays for the full cost of these expenses. If you spend less on your housing expenses than your housing allowance, you can still claim the business portion of your property tax and mortgage interest, but you can’t claim a portion of any additional housing expenses (utilities, house depreciation, house insurance, and so on). If your housing allowance doesn’t cover the full cost of your housing expenses, you can claim the remaining house expenses by using the following formula: Divide your housing allowance by your total house expenses, and then multiply this number by the business por- tion of your remaining house expenses. This is the amount that you can’t claim; subtract it from the business portion of your remaining house expenses. You can deduct the result as a business expense on Form 8829. Here’s an example taken from the IRS Child Care Provider Audit Technique Guide. Diane gets a $6,000 housing allowance. She spends $4,000 on property taxes and mortgage interest. Her other home expenses (utilities, home repairs, and home insurance) total $2,500. The home depreciation for her business totals an additional $500. Her Time-Space percent- age (the business-use percentage of her home) is 30%. Diane will claim $1,200 as a business expense for her property tax and mortgage interest on Form 8829 ($4,000 x 30%), and use the following formula for her remaining $3,000 of home expenses: Divide the housing allowance by total house expenses: $6,000 ÷ $7,000 = 85.7% Multiply the result by the business portion of the remaining house expenses: 85.7% x $1,250 ($750 [$2,500 x 30%] + $500) = $1,071.25 Subtract the result from the business portion of the remaining house expenses: $1,250 – $1,071.25 = $178.75 Diane can claim $178.75 as a business expense on Form 8829. If you are living in on-base housing, you can’t claim any home expenses except those that you pay out of your own pocket. For example, since you will have no property tax or 16 COPYRIGHTED MATERIAL