Do I Have to Be Licensed to Deduct My House Expenses?

Family child care providers are fortunate to be able to deduct many expenses associated with their homes. These include property tax, mortgage interest, utilities (gas, electric, water, sewer, garbage), house repairs, house insurance, and home depreciation. These house expenses can total thousands of dollars and represent a significant business deduction.

Child care providers can deduct the business portion of these expenses (their Time-Space Percentage) on IRS Form 8829 Expenses For Business Use of Your Home.

Can all child care providers claim these house expenses? The instructions to Form 8829 state that to qualify to claim house expenses, "... you must have applied for (and not have been rejected), been granted (and still have in effect), or be exempt from having a license certification, registration, or approval as a daycare center or as a family or group daycare home under state law."

Suppose your state law says that you can care for unrelated children from one family without needing a license. If you do care for three children from one family, and no other children, you would be exempt from state licensing rules. Therefore, you can claim Form 8829 house expenses.

In this example, if you were caring for unrelated children from two different unrelated families, you would be in violation of state law and therefore would not be entitled to claim house expenses. But, even if you were operating illegally, you could still deduct all other business expenses: food, toys, supplies, car expenses, depreciation on furniture and appliances, etc.

So, the answer to the question posed in the title of this article is "no."

Sometimes tax preparers don't understand the rules for claiming house expenses. A tax preparer from Florida asked me about this today. Sometimes a tax preparer will ask a child care provider, "Are you licensed?" That's not a helpful question. This is because you can be exempt from licensing and still claim the same expenses as a licensed provider.

If you use a tax preparer and are exempt from licensing rules (or have applied for a license but not yet received it), let him or her know that you are still entitled to claim house expenses on Form 8829.

Note: There are some drawbacks if you are not licensed.

Image credit: https://www.flickr.com/photos/jessdunnthis/34788760851

For more information on claiming deductions, no matter what your status is, see my book, Family Child Care Record Keeping Guide.

Copyright 2011, Tom Copeland, www.tomcopelandblog.com