Typical Depreciation, Section 179, OR Bonus 50% Rule

[Abigail]

I'm getting confused! 2012 was my first year of business and I have to finish my tax things in the next few days for my tax lady. Is it easier to just depreciate all items the typical way based on the business dollar amount and depreciate it over the time it's suppose to be whether it's office (5 years), personal property (7 years), land improvements (15 years), and home/home improvements (39 years)?

My first year of business I didn't have much income but my time/space percent was 50% because I have 28% exclusively used space and 22% shared space. I did not have any children of my own in 2012 so everything I bought was 100% for daycare.

We paid someone $8,112 to finish the basement. The basement is exclusively used for daycare except the laundry room because we have our washer/dryer in it which is shared. I understand finishing the basement is a home improvement to be depreciated over 39 years. How do I handle this huge expense? Is it just entering the entire dollar amount because it's for daycare or do I need to do something special because one room is shared?
Since it was my first year in business and the construction was almost complete by the time the first child enrolled can't I just include the finishing the basement to the value of the home? If not, where does it go wrong because they're both depreciated over 39 years?

We have to get a fence to expand daycare. It was $4,588. It's a land improvement so it needs to be depreciated over 7 years so would that be 4588/7=$655 per year? If it was no required for expanding the daycare that would mean I would have to use my time/space percent to use only 50% of the cost of the fence to be daycare related expense meaning only depreciating $327 per year for it right? I'm just trying to figure out how to write it down for records to remember to keep depreciating it.

Explain how the 50% depreciation rule would help? I read your blog and I didn't understand how you got 5% for the first year to add to the half. I'm thinking my tax lady just wanted to do everything basic so she didn't have to fill out extra forms and charge me more so I'm trying to figure out and easy way for me to negotiate and be happy about it.

Since I didn't make much income in 2012, would it make more sense to just not use the special rules because my income is already going to be zero?

[TomCopeland]

Depreciation

I'm getting confused! 2012 was my first year of business and I have to finish my tax things in the next few days for my tax lady. Is it easier to just depreciate all items the typical way based on the business dollar amount and depreciate it over the time it's suppose to be whether it's office (5 years), personal property (7 years), land improvements (15 years), and home/home improvements (39 years)?

My first year of business I didn't have much income but my time/space percent was 50% because I have 28% exclusively used space and 22% shared space. I did not have any children of my own in 2012 so everything I bought was 100% for daycare.

We paid someone $8,112 to finish the basement. The basement is exclusively used for daycare except the laundry room because we have our washer/dryer in it which is shared. I understand finishing the basement is a home improvement to be depreciated over 39 years. How do I handle this huge expense? Is it just entering the entire dollar amount because it's for daycare or do I need to do something special because one room is shared?
Since it was my first year in business and the construction was almost complete by the time the first child enrolled can't I just include the finishing the basement to the value of the home? If not, where does it go wrong because they're both depreciated over 39 years?

We have to get a fence to expand daycare. It was $4,588. It's a land improvement so it needs to be depreciated over 7 years so would that be 4588/7=$655 per year? If it was no required for expanding the daycare that would mean I would have to use my time/space percent to use only 50% of the cost of the fence to be daycare related expense meaning only depreciating $327 per year for it right? I'm just trying to figure out how to write it down for records to remember to keep depreciating it.

Explain how the 50% depreciation rule would help? I read your blog and I didn't understand how you got 5% for the first year to add to the half. I'm thinking my tax lady just wanted to do everything basic so she didn't have to fill out extra forms and charge me more so I'm trying to figure out and easy way for me to negotiate and be happy about it.

Since I didn't make much income in 2012, would it make more sense to just not use the special rules because my income is already going to be zero?

If you spent $8,112 to remodel the basement area of the room that was exclusively used for your business, depreciate the full amount over 39 years. If part of this money was used to remodel space that was also used personally, separate out the costs to the exclusive use space and the shared space. Multiply the cost of the remodeling of the shared space by your time-space % before depreciating that part over 39 years.
If the work was done before you started carrying for children, you could add the $8,112 to the value of your home and depreciate it as part of your home. If you do this, however, you will lose the benefit if being able to claim 100% of the cost of the exclusive use space. Therefore, depreciate the 100% space separately on Form 4562, line 19i.

You want to use the 50% bonus rule on the fence as a land improvement that is depreciated over 15 years. If the fence is exclusively used for your business, use the full cost. If not, use your Time-Space %. Assuming you use the fence personally - $4,588 x 50% time-space = $2,294. Claim half of this amount using the 50% bonus rule, or $1,147 on Form 4562, line 14. Depreciate the other half ($1,147) over 15 years on Form 4562, line 19e. The amount you can depreciate on line 19e is $1,147 x 5% = $57.35.

Assuming you will show a loss by claiming all of these deductions, you should still claim them as long as you are married and your spouse has other taxable income you can reduce with your losses. If you are single and don't have any other source of income, then don't use the 50% bonus rule and depreciate the $2,294 over 15 years.