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Most people do not start up a new business precisely on January 1. Most likely, your first year in the home office was not a complete one. Similarly, people who close down their business don't always do it precisely on the last day of their tax year.
As a result, for the first year in which you began using your home office, or for the year in which you closed your business, you'll have to prorate your home office expenses based on the percentage of the time your home office was actually used.
Special rules for depreciation. For the first year you begin using your home office, the IRS provides a table showing the fraction of your depreciable basis you can deduct, based on the month in which you started using the office. Our home office deduction calculator builds these amounts into the computation.
For the last year, you'll need to determine the amount of depreciation you'd normally deduct for the year, under the usual rules. Then multiply this amount by a fraction, of which the numerator will be the number of months that you used the office, and the denominator will be 12. Count the month in which you stopped using the property as half a month. For example, if you stopped using your office in October, the fraction will be 9.5/12.
Special rules for home day care operators. The IRS provides a special tax break for home day care operators, who can count as "business use space" whatever portion of the home is regularly used for day care purposes, even if the same space is also used for personal living purposes. However, they must prorate their home office expenses based on their hours of operation.