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Daycare and Taxes>Depreciation Recapture - Unlicensed Daycare
hgufrin 12:09 PM 02-21-2019
Hi All,

We are running an unlicensed daycare on a regular basis in our home.

We have not applied for, been granted, and are not exempt from having a license as a daycare center. Thus, according to IRS Publication 587, we are not allowed home expense deductions; i.e. DEPRECIATION.

We ARE NOT taking depreciation on our home. We are not taking any home expense deductions.

So, when we decide to sell our house, will the IRS treat us as though we took depreciation? I believe the answer is "NO" because we were not allowed home expense deductions in the first place. Correct?

I can't find this answer anywhere. I don't want to pay taxes on depreciation I never took on an unlicensed daycare.

Can you please help? Thanks!
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Blackcat31 12:31 PM 02-21-2019
Originally Posted by hgufrin:
Hi All,

We are running an unlicensed daycare on a regular basis in our home.

We have not applied for, been granted, and are not exempt from having a license as a daycare center. Thus, according to IRS Publication 587, we are not allowed home expense deductions; i.e. DEPRECIATION.

We ARE NOT taking depreciation on our home. We are not taking any home expense deductions.

So, when we decide to sell our house, will the IRS treat us as though we took depreciation? I believe the answer is "NO" because we were not allowed home expense deductions in the first place. Correct?

I can't find this answer anywhere. I don't want to pay taxes on depreciation I never took on an unlicensed daycare.

Can you please help? Thanks!
So you are operating illegally?
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hgufrin 12:35 PM 02-21-2019
my wife watches 2 infants and 1 toddler.
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Blackcat31 01:26 PM 02-21-2019
Originally Posted by hgufrin:
my wife watches 2 infants and 1 toddler.
But is she legally required to be licensed?

I am not in Illinois and am unfamiliar with their licensing requirements.
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hgufrin 01:28 PM 02-21-2019
Thanks for the quick response. No, she is not legally required to be licensed.
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TomCopeland 02:06 PM 02-22-2019
Originally Posted by hgufrin:
Hi All,

We are running an unlicensed daycare on a regular basis in our home.

We have not applied for, been granted, and are not exempt from having a license as a daycare center. Thus, according to IRS Publication 587, we are not allowed home expense deductions; i.e. DEPRECIATION.

We ARE NOT taking depreciation on our home. We are not taking any home expense deductions.

So, when we decide to sell our house, will the IRS treat us as though we took depreciation? I believe the answer is "NO" because we were not allowed home expense deductions in the first place. Correct?

I can't find this answer anywhere. I don't want to pay taxes on depreciation I never took on an unlicensed daycare.

Can you please help? Thanks!
Since you are not entitled to claim house depreciation because you are in violation of state licensing laws, you will not be taxed on any depreciation when you sell your home.
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hgufrin 02:13 PM 02-22-2019
Mr. Copeland,
Thanks for the reply.

I wanted to clarify. We are not in violation of licensing laws because she only cares for 3 children.

Having said that... your response still applies, correct?
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TomCopeland 04:23 PM 02-23-2019
Originally Posted by hgufrin:
Mr. Copeland,
Thanks for the reply.

I wanted to clarify. We are not in violation of licensing laws because she only cares for 3 children.

Having said that... your response still applies, correct?
No, what I said doesn't apply. Since you are not in violation of state child care licensing rules, you are exempt from licensing rules. This means you are entitled to claim house depreciation and other house expenses on Form 8829. That means that you will owe tax on the depreciation you claim, or are entitled to claim when you sell your home. Therefore, you want to claim house depreciation! This is a great benefit. You will have to pay tax on this depreciation when you sell your home even if you don't claim the depreciation. So claim it!
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LysesKids 06:29 PM 02-23-2019
Originally Posted by hgufrin:
my wife watches 2 infants and 1 toddler.
You are what is called, a legally, licensed exempt HOME... different than a daycare center or licensed daycare home. If you took on a 4th child, you would have to be licensed. As Tom said, since you are running legal, take all the deductions allowed
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hgufrin 06:51 AM 03-04-2019
I appreciate you all and this forum. It helps tremendously.
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Tags:depreciation - home, depreciation recapture, taxes - unlicensed, tom copeland, unlicensed
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