What is a Home Improvement?

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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 a home improvement.

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: 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.

Note: A new rule in 2015 expands the definition of a repair

Treasury Regulation 1.263 redefines what can be treated as a repair.

If you replace less than half of your windows, roof shingles (but not the roofing boards underneath), or less than half of your wood or tile floors you may be able to treat this as a repair and deduct it in one year! See my article, “When is a Home Improvement Now a Repair?” for details.

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, “Conduct a Household Inventory to Save Money.”

Let’s look at an example: In 2017 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.

Note: Congress has passed bonus depreciation rules that allow providers to claim a major portion of the depreciation deduction in the first year. These rules changes from year to year, so see my annual Family Child Care Tax Workbook and Organizer for the latest update.

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:  100_1049

 

 

 

 

 

 

 

 

 

6a0133f3fc5805970b01bb08151dd5970d-320wiFor more information about home improvements, see my book Family Child Care Record Keeping Guide.



Categories: Depreciation and Home, Record Keeping & Taxes

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23 replies

  1. 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)?

  2. 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.

  3. 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

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

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

  6. 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.

  7. 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.

  8. 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.

  9. 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.

  10. Can I claim landscaping as a deduction?

  11. 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.

  12. 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?

  13. 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.

  14. 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.

  15. How does a small do-it-yourself home improvement project work? We bought things here and there over the course of the past year and slowly fixed things up once the plumbing was redone. Do I still add up all the small purchases to count it as a home improvement? (About $500 worth)? It started as a plumbing problem that had to be redone–but then new drywall, concrete, mud were needed to replace the parts that needed to be destroyed. This gets very grey to me. Ugh

  16. we had the back yard landscaped for the child care we had playground wood mulch put in place and removed the old rock (it was all over and very dangerous) i also had sod put in so we could use the yard asap would this be deductible we also had a sprinkler system put in.

  17. Deduct the wood mulch and rock removal in one year as a maintenance expense. Deduct the sod in one year. Depreciate the sprinkler system over 15 years as a land improvement.

  18. If we had hail damage and had a new roof replaced, and new paint for the house (some covered by insurance, some paid by us)- would we claim them as a repair or replacement?

    • You can’t deduct any expenses paid for by insurance. You can claim a casualty loss for costs you paid for. In addition, if you simply replaced shingles you can treat your costs as a repair and deduct in one year. If you replaced the boards underneath and replaced the roof you can depreciate your costs over 39 years, but also use the 50% bonus depreciation rule and claim half the depreciation in the first year.

  19. For do-it-yourself home improvements, can you include in your deductions the cost of tools that you had to purchase to complete the project? We redid our kitchen cabinets and my husband purchased several power tools (table saw, sander, etc). Can we deduct the cost of these? Or only the supplies/materials?

  20. i am trying to figure out how to claim this… our basement was unfinished and we finished it and it is 100% daycare use. can i claim that as daycare start up costs or is it home improvement or what exactly would this be considered. it was just studs and concrete floor. so we did drywall, painting, flooring, and electrical. how do i claim this please help!

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