Home Depreciation

I started depreciating my home in my first year of daycare in 2017. I’m still doing home daycare, but I’m considering closing within the next couple years. What will happen to my taxes if I depreciated my home for only a couple years? Will I owe a lot of money? I’m worried about being stuck in this business now.

[TomCopeland]

Originally Posted by Unregistered

I started depreciating my home in my first year of daycare in 2017. I’m still doing home daycare, but I’m considering closing within the next couple years. What will happen to my taxes if I depreciated my home for only a couple years? Will I owe a lot of money? I’m worried about being stuck in this business now.

In the year you sell your home you will owe taxes on the amount of house depreciation you claimed (or were entitled to claim!). The taxes you pay will depend on your family's tax bracket in the year you sell your home. The tax brackets are 10%, 12%, 22% and 24% (and higher if your family's adjusted gross income is above $315,000). So, if you were in the 12% tax bracket, claimed $1,000 in depreciation each year for 8 years, your tax would be $960 ($8,000 x 12% = $960). If you didn't claim the $8,000 in house depreciation you would still owe $960! Therefore, always claim house depreciation!

If you don’t plan on selling your home will you owe anything after closing? My tax person said to depreciate if I plan on doing this long term, but now I’m not so sure I’ll be doing this for the long term.

[TomCopeland]

Originally Posted by Unregistered

If you don’t plan on selling your home will you owe anything after closing? My tax person said to depreciate if I plan on doing this long term, but now I’m not so sure I’ll be doing this for the long term.

You will only owe tax on house depreciation when you sell your home. You want to depreciate your home even if you only plan to be in business for one year! Let's say you are entitled to claim $1,000 in home depreciation for one year, but you don't claim it. You go out of business after one year. Seven years later you sell your home. At that time you will owe taxes on $1,000 even if you didn't depreciate it. So, why wouldn't you claim the $1,000 deduction for one year?

Thank you very much for your help!