What is a Home Improvement?

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."

Image credit: Tammy Davis Fines

Here's another picture of a deck from Corinne Carr: 

 

 

 

 

 

 

 

 

 

 

For more information about home improvements, see my book Family Child Care Record Keeping Guide.

Comments

[Andrea]

I notice you mention "replacing broken roof shingles" as something that is deductible. We had to replace our entire roof in 2011, costing just over $6k. Is this deductible (taken at time-space %, and depreciated over 39 yrs. of course)?

[Tom Copeland]

Yes, a new roof is considered a home improvement to be depreciated over 39 years (after applying the Time-Space%). If you replaced just a few shingles it would be considered a repair and be deductible in one year.

[J. Brandon]

I run a Painting and Handyman company and my customers sometimes ask me the difference between a repair and home improvement for tax purposes. This article helps, but there are sometimes grey areas (at least to me). For example, a wealthy customer wants a door replaced for purely cosmetic reasons (it would look fine to most people). would a simple door installation be considered an Improvement or a repair in this case?

Thanks
-J Brandon

[Angel Olmedo]

Change a out-of-use refrigerater or stove can be considered a repair and fully deductible in the year of change?

[Tom Copeland]

If you are replacing a refrigerator or stove, this is not a repair. If you fix them, then it's a repair.

[Tom Copeland]

J Brandon - There is a big grey area when talking about the difference between a repair and an improvement. I would consider replacing a door a repair because it doesn't increase the value of the home. But, I'm not 100% certain, because the law is not clear.

[Dr. Vaughan Dabbs]

This is wonderful. I am not quite familiar with the internet, but I beleive that what I just read is some good material. Thanks for continuing to write such wonderful articles. God bless.

[Melbourne Splashbacks]

Good day! Last year, we installed a new central security alarm system but we failed to declare it on our 2011 tax return. Would it be possible if we declare it on this year’s tax return instead and claim deductions? Thanks.

[Tom Copeland]

If you didn't claim the security alarm system last year, you can't claim it this year. You can file an amended tax return and claim for last year and get a refund.

[Deborah Walter]

Can I claim landscaping as a deduction?

[Tom Copeland]

Believe it or not, landscaping is a tricky issue. If it costs less than $100 deduct it in one year. If it costs more, and it's close to the house (close enough that it would be damaged if you physically moved the home) then you must depreciate it as part of the home (39 years). If it's not that close, you can't deduct it.

[Donna U]

I wanted to convert our front porch so I could use it in the winter or on rainy days for my daycare kids. We have an older house with an enclosed front porch that had combination windows all the way around. We replaced the windows with 5 sliders, insulated the walls and put up drywall. I have saved all the receipts. I also use our upstairs bedroom for the kids when they nap. It was extremely hot up there so I got an attic fan and a window unit. Can I use these as a deduction this yr?

[Tom Copeland]

Yes, you can depreciate the front porch remodeling as a home improvement. Claim the attic fan and the window unit as "personal property" that you can depreciate over 7 years.

[Jarl Kubat]

In many cases just cleaning your home along with organizing closets, cupboards, garage,basement, etc... dose wonders for the sale of your home! Although, when ever you can make internal and/or external improvements to your home - helps with resale.