Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, March 16, 1992                   TAG: 9203140198
SECTION: BUSINESS                    PAGE: B6   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

TAX RULES EASED FOR HOME DAY-CARE PROVIDERS

The ruling is designed to clarify regulations that many providers last year feared would force them to pay higher taxes and lead to an increase in child-care charges.

In essence, the ruling will allow providers to deduct costs associated with any area of their home that is used regularly for day care - even if the area is not used for day care every hour of the business day.

"A day-care provider is not required to keep records of the specific hours of usage of such a room during business hours," the ruling said. "Also, the occasional non-use of such a room for a business day will not disqualify the room from being considered regularly used."

The ruling cites the example of a provider whose home has 1,600 square feet. No room in the house is used exclusively for day care but several rooms, totaling 1,200 square feet, are used regularly for that purpose.

Thus, the provider may consider that three-quarters of the home is used for business purposes.

But that is only half the equation. In calculating a tax deduction, the provider must consider the total number of hours in a year that the rooms are used for business purposes, including preparing the home before children arrive and cleaning up after they leave.

"Instead of providers having to say, for example, that a bedroom was used three hours a day and the kitchen two hours, they can count the rooms as being used for the total day as long as they are regularly used and available for day care," IRS spokesman Gail Ellis explained Friday.

The tax deduction for business use of the home by a day-care provider would be calculated by multiplying allowable expenses by a fraction reflecting the percentage of time that the rooms are available for day care. Those expenses include mortgage interest, taxes, depreciation, utilities, insurance and general maintenance of the home.

Many day-care operators have claimed that an IRS attempt last year to clarify tax treatment of their expenses would have drastically expanded their record-keeping burden and make it more difficult to deduct their costs. The new ruling apparently goes in the opposite direction.