Daycare.com Forum

Go Back   Daycare.com Forum > Daycare and Taxes

Daycare and Taxes All things related to Taxes and running a Daycare post here. Topics of tax exemptions, forms, filings, tax write offs, IRS etc.

Reply
 
Thread Tools Display Modes
  #1  
Old 02-07-2017, 08:55 AM
LittleScholars's Avatar
LittleScholars LittleScholars is online now
Daycare.com Member
 
Join Date: Jan 2016
Location: New York
Posts: 387
Default Should I Really Depreciate My Home?

Last year I read all of Tom's tax books in preparation for my first year being open for business. I had planned on depreciating my home because that's a large write-off and my accountant said I should not. Her thinking was that if we ever sell our home (and, who knows, maybe one day we will) we will owe a ton in capital gains taxes.

I don't know enough about either side of this to make a decision. Any thoughts?
Reply With Quote
  #2  
Old 02-07-2017, 10:15 AM
TomCopeland's Avatar
TomCopeland TomCopeland is online now
Business Author/Trainer
 
Join Date: Jun 2010
Location: St. Paul, Minnesota
Posts: 2,766
Default home depreciation

Quote:
Originally Posted by LittleScholars View Post
Last year I read all of Tom's tax books in preparation for my first year being open for business. I had planned on depreciating my home because that's a large write-off and my accountant said I should not. Her thinking was that if we ever sell our home (and, who knows, maybe one day we will) we will owe a ton in capital gains taxes.

I don't know enough about either side of this to make a decision. Any thoughts?
Your tax preparer is crazy and if you follow his advice you will lose thousands of dollars of tax deductions while you are in business. The short answer is this: When you sell your home you will owe taxes on the depreciation you claimed while using your home for your business. But, if you don't depreciate your home, you will still owe tax on the amount of depreciation you were entitled to claim, even if you didn't claim it. So there if you don't depreciate your home you will lose a big deduction each year and still pay the same amount in taxes when you sell your home. IRS Publication 523 clearly states this. See my article: http://tomcopelandblog.com/should-yo...iate-your-home

Also, here's what the IRS Child Care Audit Technique Guide says:
Sale of Home

A capital gain issue may arise if the provider/owner sells the residence (home) in which he or she operated a business and depreciation deductions were allowed or were allowable. All or a portion of the gain on the sale of the home may qualify under IRC Section 121 to be exempt from taxation if the provider meets certain requirements discussed below. However, IRC Section 121(d)(6) provides that the exclusion provided under IRC Section 121 does not apply to any gain from the sale of a principal residence attributable to depreciation adjustments (as defined in IRC Section 1250(b)(3)) allowed or allowable for periods after May 6, 1997. Therefore, a provider/owner who used part of his or her home for business purposes may not exclude any gain from the sale of that residence that is attributable to depreciation adjustments taken or allowed for periods after May 6, 1997.

If the business is conducted within the primary residence structure, then the gain, except for depreciation allowed or allowable, can be excluded if the provider/owner meets certain requirements, including the time and ownership test discussed below. If the business is conducted in a structure separate from the personal residence, then the portion of the gain allocable to that structure would not qualify under Section 121 for exclusion unless the provider/owner can show personal use of the structure that meets the time and ownership test. An allocation between the separate business use structure and the personal residence structure is required. (IRC Regulation 1.121-1(e) and Publication 523 provide more information and examples relating to this issue.)

Show this to your tax preparer. If he still won't depreciate your home, quit him and get another tax preparer. This is such a big deal that you can't afford not to claim house depreciation.
__________________
http://www.tomcopelandblog.com
Reply With Quote
  #3  
Old 02-07-2017, 10:38 AM
LittleScholars's Avatar
LittleScholars LittleScholars is online now
Daycare.com Member
 
Join Date: Jan 2016
Location: New York
Posts: 387
Default

Quote:
Originally Posted by TomCopeland View Post
Your tax preparer is crazy and if you follow his advice you will lose thousands of dollars of tax deductions while you are in business. The short answer is this: When you sell your home you will owe taxes on the depreciation you claimed while using your home for your business. But, if you don't depreciate your home, you will still owe tax on the amount of depreciation you were entitled to claim, even if you didn't claim it. So there if you don't depreciate your home you will lose a big deduction each year and still pay the same amount in taxes when you sell your home. IRS Publication 523 clearly states this. See my article: http://tomcopelandblog.com/should-yo...iate-your-home

Also, here's what the IRS Child Care Audit Technique Guide says:
Sale of Home

A capital gain issue may arise if the provider/owner sells the residence (home) in which he or she operated a business and depreciation deductions were allowed or were allowable. All or a portion of the gain on the sale of the home may qualify under IRC Section 121 to be exempt from taxation if the provider meets certain requirements discussed below. However, IRC Section 121(d)(6) provides that the exclusion provided under IRC Section 121 does not apply to any gain from the sale of a principal residence attributable to depreciation adjustments (as defined in IRC Section 1250(b)(3)) allowed or allowable for periods after May 6, 1997. Therefore, a provider/owner who used part of his or her home for business purposes may not exclude any gain from the sale of that residence that is attributable to depreciation adjustments taken or allowed for periods after May 6, 1997.

If the business is conducted within the primary residence structure, then the gain, except for depreciation allowed or allowable, can be excluded if the provider/owner meets certain requirements, including the time and ownership test discussed below. If the business is conducted in a structure separate from the personal residence, then the portion of the gain allocable to that structure would not qualify under Section 121 for exclusion unless the provider/owner can show personal use of the structure that meets the time and ownership test. An allocation between the separate business use structure and the personal residence structure is required. (IRC Regulation 1.121-1(e) and Publication 523 provide more information and examples relating to this issue.)

Show this to your tax preparer. If he still won't depreciate your home, quit him and get another tax preparer. This is such a big deal that you can't afford not to claim house depreciation.
Oh my goodness, I am SO glad I asked! It really is thousands we would be losing. This year I don't owe as much as I will in future years because I'm so new, but this is great. Thank you!
Reply With Quote
Reply

Tags
home depreciation, tom copeland

Thread Tools
Display Modes

Posting Rules
You may post new threads
You may post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off

Forum Jump

Similar Threads
Thread Thread Starter Forum Replies Last Post
Demanding to Take Home Toys/Food at Pick Up Unregistered Daycare Center and Family Home Forum 29 01-24-2016 01:38 PM
Part Time In home Preschool Unregistered Daycare Center and Family Home Forum 7 11-18-2015 10:19 AM
How Do I Depreciate Home Improvements If I Had A Fire? melilley Daycare and Taxes 3 03-17-2014 05:07 PM
Do You Let DCKs Take Things Home? childcaremom Daycare Center and Family Home Forum 11 11-24-2013 11:42 AM
Switching From A Church Daycare To Home Daycare Unregistered Parents and Guardians Forum 7 12-03-2012 08:50 AM


All times are GMT -7. The time now is 10:26 AM.



Daycare.com         Find A Daycare         List Your Daycare         Toys & Products                 About Us

Daycare.com
Please read our Disclaimer before continuing.

Topics pertain mainly to the following States:

Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming