To determine the area on lines 1 and 2, you may use square feet or any other reasonable method if it accurately figures your business percentage on line 7.

Do not include on line 1 the area of your home you used to figure any expenses allocable to inventory costs. The business percentage of these expenses should have been taken into account in Part III of Schedule C.

Enter the total number of hours the facility was used for daycare during the year.

If you started or stopped using your home for daycare in 2003, you must prorate the number of hours based on the number of days the home was available for daycare. Cross out the preprinted entry on line 5. Multiply 24 hours by the number of days available and enter the result.

If all the gross income from your trade or business is from the business use of your home, enter on line 8 the amount from Schedule C, line 29, plus any net gain or (loss) derived from the business use of your home and shown on Schedule D or Form 4797. If you file more than one Form 8829, include only the income earned and the deductions attributable to that income during the period you owned the home for which Part I was completed.

If some of the income is from a place of business other than your home, you must first determine the part of your gross income (Schedule C, line 7, and gains from Schedule D and Form 4797) from the business use of your home. In making this determination, consider the amount of time you spend at each location as well as other facts. After determining the part of your gross income from the business use of your home, subtract from that amount the total expenses shown on Schedule C, line 28, plus any losses from your business shown on Schedule D or Form 4797. Enter the result on line 8 of Form 8829.

Enter only the amounts that would be deductible whether or not you used your home for business (i.e., amounts allowable as itemized deductions on Schedule A (Form 1040)).

Treat casualty losses as personal expenses for this step. Figure the amount to enter on line 9 by completing Form 4684, Section A. When figuring line 17 of Form 4684, enter 10% of your adjusted gross income excluding the gross income from business use of your home and the deductions attributable to that income. Include on line 9 of Form 8829 the amount from Form 4684, line 18. See line 27 below to deduct part of the casualty losses not allowed because of the limits on Form 4684.

Do not file or use that Form 4684 to figure the amount of casualty losses to deduct on Schedule A. Instead, complete a separate Form 4684 to deduct the personal portion of your casualty losses.

On line 10, include only mortgage interest that would be deductible on Schedule A and that qualifies as a direct or indirect expense. Do not include interest on a mortgage loan that did not benefit your home (e.g., a home equity loan used to pay off credit card bills, to buy a car, or to pay tuition costs).

If you itemize your deductions, be sure to claim only the personal portion of your deductible mortgage interest and real estate taxes on Schedule A. For example, if your business percentage on line 7 is 30%, you can claim 70% of your deductible mortgage interest and real estate taxes on Schedule A.

If the amount of home mortgage interest you deduct on Schedule A is limited, enter the part of the excess mortgage interest that qualifies as a direct or indirect expense. Do not include mortgage interest on a loan that did not benefit your home (explained earlier).

Include on this line any 2003 operating expenses not included on lines 9 through 19.

If you rent rather than own your home, include the rent you paid on line 20, column (b). If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing.

Multiply your casualty losses in excess of the amount on line 9 by the business percentage of those losses and enter the result.

If your home was used in more than one business, allocate the amount shown on line 34 to each business using any method that is reasonable under the circumstances. For each business, enter on Schedule C, line 30, only the amount allocated to that business.

Enter on line 35 the cost or other basis of your home, or, if less, the fair market value of your home on the date you first used the home for business. Do not adjust this amount for depreciation claimed or changes in fair market value after the year you first used your home for business. Allocate this amount between land and building values on lines 36 and 37.

Attach your own schedule showing the cost or other basis of additions and improvements placed in service after you began to use your home for business. Do not include any amounts on lines 35 through 38 for these expenditures. Instead, see the instructions for line 40.

If no additions and improvements were placed in service after you began using your home for business, multiply line 38 by the percentage on line 39. Enter the result on lines 40 and 28.

Attach a schedule showing your computation and include the amount you figured in the total for line 40. Write “See attached” below the entry space.

Complete and attach Form 4562, Depreciation and Amortization, only if:

If you first used your home for business in 2003, enter the amounts from lines 38 and 40 of Form 8829 on the appropriate line of Form 4562. But do not include this amount on Schedule C, line 13.

Paperwork Reduction Act Notice.   We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.

  You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

  The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is: Recordkeeping, 52 min.; Learning about the law or the form, 7 min.; Preparing the form, 1 hr., 15 min.; and Copying, assembling, and sending the form to the IRS, 20 min.

  If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. See the Instructions for Form 1040.