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Chapter OR Basics of DOUBLE TAP TO ZOOM WITH PHONE One: The TABLET Record Keeping mortgage interest expenses, no deductions for these expenses are allowed. But if you spend your own money on a home repair, fence, or home improvement, you can deduct the busi- ness portion (usually using the Time-Space percentage) of these expenses on Form 8829 or Form 4562 Depreciation and Amortization. If your family is renting an apartment or home off-base, you are not incurring any mort- gage interest or property tax costs, and therefore may not claim these business deductions. If your housing allowance covers all housing expenses, you may not claim any other housing expenses as business deductions. If the allowance is not enough to cover rent and other hous- ing expenses (utilities, renter’s insurance, and repairs), you may deduct a portion of your out- of-pocket expenses using the formula as described above. If you have additional questions about housing allowances and deducting housing expenses, consult a representative from the military, the IRS, or a tax professional. To see the more detailed description of the housing allowance in the IRS Child Care Provider Audit Technique Guide, go to http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/ Child-Care-Provider-Audit-Technique-Guide. Clergy Some family child care providers have spouses who are members of the clergy and receive housing or rental allowances. With a few exceptions, the tax consequences of these allow- ances are similar to those of military housing allowances. For more information, see IRS Publication 517 Social Security and Other Information for Members of the Clergy and Religious Workers. Foster Care Payments If you care for foster children in addition to running a child care business, the payments that you receive for child or adult foster care under an arrangement with a qualified charitable organization or government agency are not taxable income to you. In addition, you can’t claim any expenses for caring for these persons. If a foster child or adult pays you directly, the payments are taxable income and you must report them on Schedule E Supplemental Income and Loss. You may also deduct the expenses that you incur in caring for these foster clients on Schedule E (see the instructions for Schedule E). However, you can’t claim these expenses on Schedule C as a day care expense, and then claim them again on Schedule E. For more information, contact your local foster placement agency or see IRS Publication 525 Taxable and Nontaxable Income. Also check your state tax rules, since they may be different from the federal tax rules. Bartering Child Care Some providers (or providers and parents) exchange child care services; one person will care for the children one day, in exchange for the other person taking the children another day, and no money changes hands. This is known as bartering. From a tax standpoint, whenever one COPYRIGHTED MATERIAL 17