Building an Addition

[Heidi]

Hi Tom...

I was looking through some old threads, but I need clarification.

If I put a $40K addition on my home that's 100 percent daycare, I have to depreciate that over 39 years?

So, I'd essentially be able to write off only $1,000 per year of that cost?

Assuming that I won't be working until the age of 89, what are the consequences if I stop doing daycare before the 39 years is up, or if I sell my home?

Presumably, the addition would add value to the home, so we'd recoup the costs if we sold the home anyway, but I'm wondering if it'd be worth it just for more space (and we desperately need more space..only because I have a daycare, though).

Oh...and would it be wiser to finance that addition, even if I had the mullah to pay cash?

[TomCopeland]

Addition

Hi Tom...

I was looking through some old threads, but I need clarification.

If I put a $40K addition on my home that's 100 percent daycare, I have to depreciate that over 39 years?

So, I'd essentially be able to write off only $1,000 per year of that cost?

Assuming that I won't be working until the age of 89, what are the consequences if I stop doing daycare before the 39 years is up, or if I sell my home?

Presumably, the addition would add value to the home, so we'd recoup the costs if we sold the home anyway, but I'm wondering if it'd be worth it just for more space (and we desperately need more space..only because I have a daycare, though).

Oh...and would it be wiser to finance that addition, even if I had the mullah to pay cash?

Yes, you must depreciate it over 39 years because it's a home improvement. Yes, you will only get about a $1000 deduct each year. If you stop doing child care, or sell your home after 10 years, you will not be able to depreciate the remaining 29 years of depreciation. You would not be better off financing it if you had the cash. Yes, you could deduct the interest on the loan, but it wouldn't reduce your taxes by that same amount. So, if you paid $1,000 in interest in the year, your taxes would only go down by about $300 or $400. So, pay cash if you can afford to.