Taxes: What Happens When Your Business Use % Changes

[legomom922]

Like if I use a room 90% for business for 4 months, but then the room becomes somehing else and then the buisness use of the room changes over to be time/space %, what happens? How would I calculate that? Or am I just out of luck now and can only use t/p%?

Same with a room you may use 100% for business for 6 months, but then you change the room and its purpose and now has to be calculated as t/p%?

Am I now out of luck?

[Abigail]

Calculate your room that you used 4 months at 90% and write the number down. Then do you current calculation for whatever percentage you use it now and write that number down. Your first number is 33.33% because you used it at that rate for 4/12 months of the year. Write that number down (90% x 33.33%=30%) Then take your second number, which is your 8 months out of the year number and multiple that percent by 66.67% which is the percentage of the year for those 8/12 months. Did I lose you yet? Sorry, it's probably easier said in the book with examples. Then, you just add your two percents together. So, if you changed your 90% down to 50% your overall use would be (90% use became only 30% being used 4/12 months like stated above AND the new 50% use became only 33% being used 8/12 months so ADD those two percents together gets you 30+33=63%) That 90% and 50% balanced out to be 63%. Did you get that? I can help with specifics if you post them. Always double check my work though!

[Michael]

Here are some more threads that may help: http://www.daycare.com/forum/tags.php?tag=time+space+percentage

[TomCopeland]

When determining how much of your house expenses (property tax, mortgage interest, house insurance, house repairs, utilities, house depreciation) you can claim as a business expense you must calculate your time-space percentage. This appears on Form 8829 Expenses for Business Use of Your Home.

To calculate the space percentage of this formula you should look at each room in your home and ask yourself the question - "Do I use this room on a regular basis for my business?" Regular use means 2 or 3 times a week for business. If children are in the room for 20 minutes a day this is regular use. If you use the laundry room several times a week to wash stuff for your business, count the laundry room as regular use (even though children don't go into the room). You don't need to calculate how much of the time your use your room (sorry Abigail).

Add up all the square feet of rooms used regularly for your business and divide by the total square feet of your home. This is your space percentage.

If you use a room 100% for your business then there is another method you use to calculate your time-space percentage. But, to do so you must never use the room for personal purposes (even just once in a year). So, if you used a room 100% for your business January - April and then used it partly for business and personal purposes for the rest of the year, this is not a 100% business room - it's a regular use room.

Here are two articles that explain the Time-Space Percentage in detail:
http://tinyurl.com/26evdyc
http://tinyurl.com/232alfq

My book Family Child Care Record Keeping Guide has a long chapter on the time-space percentage.

[Abigail]

Wow, so all my hard work figuring out percentages doesn't matter after all? LOL. I thought if a room was exclusive use and then switched during the year to partial use then you could mix them together. So, if I had an exclusive use room and switched, then I would automatically lose that exclusive use rate for the time it was used exclusively for daycare?

I just read the two links provided by Tom and didn't see anything about if an exclusive-use room changes to a regular use room.

[TomCopeland]

Sorry I didn't make myself clearer. If you start out the year using a room exclusively for your business but use it for personal purposes later in the year (even just once!) you no longer have an exclusive use room. Instead, the room is now considered a regular business use room. Unfortunately, you don't get credit for the time it was used exclusively.

[legomom922]

That made it very clear! LOL Thanks Tom!

[Abigail]

OHHHH now I get it. It's not only an "all or nothing" for exclusively used rooms, BUT it MUST remain that way ALL year?! Ouch, you should add the remain that way all throughout the fiscal year to your next editiion of your book if that is not mentioned. I think too hard about things sometimes. I know it stressed how it must be 100%, not 97%, but didn't notice the entire year requirement.