Home improvement

What is a Home Improvement?

By Tom Copeland.  Published with permission

Family child care providers are entitled to deduct expenses that are "ordinary and necessary" for their business. Because you are offering a home-based learning environment for children, it's reasonable to deduct many expenses associated with your house.

This includes expenses associated with cleaning, maintaining and repairing your home. It also includes home improvements.

Home improvements are expenses for the permanent improvement or modification of your home that increase its value or prolongs its useful life.

Examples of home improvements include: attic fan, awnings, carport, central air conditioning, central security alarm system, deck, furnace, garage, new room addition, porch, remodel kitchen/bathroom/playroom/bedroom/living room, replacement windows, and tile/wood flooring.

Home improvements must be depreciated over 39 years. A house repair can be deducted in one year. House repairs include: painting, wallpapering, replacing broken roof shingles, deck staining, floor sanding, furnace cleaning, plumbing/electrical repairs, and replacing broken glass.

Home improvements you made before your business began should be added to the value of the home and depreciated as one. Home improvements you make after your business begins should be depreciated separately.

I recommend that all child care providers depreciate their home improvements. You can use my Family Child Care Inventory-Keeper to help you record these improvements. Although the deduction for home improvements may be small each year, they will add up over time. See my article, "How to Conduct a Household Inventory to Save Money."

Let's look at an example: In 2012 you add a deck to the back of your home that costs $4,000. Since the deck is used by both your family and your business, you must multiply the cost by your Time-Space Percentage. If you Time-Space Percentage is 40%, the business portion of the deck is $1,600 ($4,000 x 40% = $1,600). $1,600 depreciated over 39 years results in a $41 deduction each year for 39 years. If you don't stay in business for the next 39 years (!) you won't get any depreciation after you are closed.

If you made home improvements either before or after you went into business that you have not yet depreciated, it's not too late to claim this depreciation. Use IRS Form 3115 when filing your 2012 tax return. See my article, "How to Claim Previously Unclaimed Depreciation."

www.tomcopelandblog.com