Here’s how to deduct a fence that a family child care provider puts up in her back yard.
First: You can deduct a fence because it’s an “ordinary and necessary” business expense. You need to keep children safe or you want more privacy or you want to keep dogs and others out of your back yard that you use for your business.
Second: How much of the fence can you deduct? If your licensor requires you to put up a fence, deduct 100% of the cost of the fence. Get a written statement from your licensor.
If your licensor doesn’t require a fence, you can deduct the business portion of the fence. Determining the business portion can be tricky. If you don’t have young children of your own and you put up the fence solely because of your business, deduct 100% of the cost. If you do have young children of your own, you could take a conservative position and deduct the Time-Space Percentage of the cost of the fence. Or, you could take a more assertive position and claim a higher percentage based on the actual use of the fence. Read my article, “How to Calculate an Actual Business Use Percent.”
Third: When can you deduct the fence? If the fence cost less than $2,500 you can deduct it in one year. If it cost more than $2,500 you must depreciate it over 15 years as a land improvement. However, you can also use the 50% bonus depreciation rule.
Here’s some examples:
$2,000 fence x 100% business use = $2,000 deduction in one year
$2,000 fence x 75% business use – $1,500 deduction in one year
$3,000 fence x 40% Time-Space % = $1,200 x 50% = $600 deduction in first year using the 50% bonus rule. The remaining $600 gets depreciated over 15 years ($600 x 5% first year depreciation = $30). Total depreciation in first year: $630.
Tom Copeland – www.tomcopelandblog.com
Image credit: https://www.flickr.com/photos/dapaw/