A family child care provider asks:
> I would like to do some carpet replacement and painting this summer. How much is usually deductible?
When it comes to fixing up your home, you have to distinguish between repair and maintenance work versus improvements. Any major project (e.g. construction, new roof, new patio) or a brand new installation (e.g. water heater, dishwasher) is an improvement. Anything that fixes an existing installation (e.g. plumbing repairs, painting, replacement roof shingles) is considered a repair/maintenance expense.
The cost of repair and maintenance work is fully deductible on your income tax return. Improvements are subject to depreciation, which means the cost is deducted over a number of years. How many years depends on the item. Improvements to the structure of your home are deducted over a period 39 years. New appliances and carpeting are 7-year property in a home day care situation. (They are 5-year property in a residential rental.)
Remember that you can only depreciate/deduct the business portion of your cost. Your time/space business percentage will normally apply, unless you repair or improve a 100% business-use space or item. (Though other percentages can apply in some situations.)
When you replace the carpet, keep track of the cost and installation date. For income tax purposes, you must list all improvements separately. First year depreciation will be 14.29% of the cost after applying your time/space percentage.
On the other hand, painting cost can be lumped in with your other home repair/maintenance items, resulting in one dollar amount total for the year. However, if the painting is associated with an improvement, such as a room remodel, then lump the cost into the total cost of the improvement and follow the rules for depreciation.
Last updated on 6 July 2011