Home Improvements - A Clarification on the New Law
In a previous article I've written, I've indicated that under the new tax law passed in late 2017, family child care providers can deduct in one year anything they purchase except for their home and a home addition.
After looking more closely at this law I need to make a clarification about home improvements.
Examples of home improvements are: new furnace, remodeling, replacing more than half your windows or doors or flooring.
A repair can be deducted in one year, regardless of the cost. A repair includes replacing roof shingles (but not the boards underneath), painting, wallpapering, replacing less than half your windows, doors or flooring, tree removal, etc.
Home improvements have been traditionally depreciated over 39 years.Here's how the law has changed:
For home improvements completed from January 1, 2017 through September 27, 2017, there is a 50% bonus rule that allowed half of the depreciation of such home improvements to be claimed in the first year.
Example: If you remodeled your kitchen for $10,000 in August 2017 and your Time-Space Percentage was 30%, you could deduct $1,500 in 2017 using the 50% bonus rule ($10,000 x 30% = $3,000 x 50% bonus = $1,500). You would then depreciate the remaining $1,500 ($3,000 - $1,500) over 39 years for an additional $38 deduction ($1,500 divided by 39 years).
For home improvements completed from September 28, 2017 through December 31, 2017, there is a 100% bonus rule. This allows providers to deduct 100% of the business portion of home improvements in 2017 with no depreciation. So, in the above example, the provider would deduct the full $3,000 in 2017.
For home improvements completed in 2018, the law reverts back to 39 year depreciation. So, in our example above, the provider would depreciate $3,000 over 39 years and received a deduction of $77 each year for 39 years.
My apology: I have previously written and said in my tax workshops that providers could take advantage of the 100% bonus rule for home improvements made in 2018. In fact, that's not accurate.
I based this on the fact that the congressional committees of Congress did make home improvements eligible for the 100% bonus rule.
However, the final law that passed didn't include home improvements as eligible for the 100% rule, despite the stated intention of Congress. Some experts believe that Congress will amend the law to include home improvements, but it hasn't happened yet. It's hard to know whether or not Congress will fix this issue before the end of the year. I'll keep you posted.
The law
There is another change in the law that could affect your ability to claim a home improvement in one year.
The Section 179 rule has been around for many years which allows providers to deduct in one year items used more than 50% for their business. This rule has always applied to furniture, appliances, play equipment, but not to the home, fences, patios, driveways and home improvements.
However, for 2018 the Section 179 rule now does apply to fences, patios, driveways (but not the home).Note: the 100% bonus rule for 2018 does apply to furniture, appliances, fence, patio and driveway. Just not home improvements.
Again I apologize for getting this wrong earlier.
Thanks to Bill Porter for clarifying this for me.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://imagineerremodeling.com/how-to-reduce-waste-when-remodeling-your-home/
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