Dedicated Space & T/S %

[Childminder]

Tom,

I would like to thank you for sharing all of your valuable information on the daycare business and daycare taxes. Between your books, blog and this forum I have gotten a lot of important, useful information.

My questions are about dedicated daycare space and time/space of my husband working. We operate a childcare home, licensed for six in the state of MI and it is in my name. Dh lost his job almost three years ago, seems to be one of the 'unhireable' because of his age so I had him get his daycare assistant certifications to help with the children.(not sure if relevant) I am open 6 days/18 hours, so children in care 4755 hours in 2010, T/S% 76.21%. That is counting the hours he and I worked when children not present.

We are now completely remodeling the basement to use as dedicated daycare space, the entire area shall be used to provide childcare and nothing else. It will not even be 'walked' through to get to the laundry or utility areas. We have no children of our own using the space.

My questions are;
1) He is doing all of the construction himself(he has builders license),with my help. He has been spending many hours down there, are those hours to be used in time/space calculations . I am not "paying" him but he is getting benefits. What if there are children present but in my care upstairs while he is building? Are his hours countable.
2) The bathroom that we built exclusively for childcare; is all the construction cost, supplies, time spent building, etc...100% deductible? What if it adds to the value of our home when or if we decide to quit daycare in the future?
3) Egress window; This technically changed the physical structure of the home. Is it 100%? Would not have been constructed if not for daycare.
4) He has been working on this for over a year and we are not ready to open down there yet. Hopefully by June depending on $$$. Do I wait to do taxes on everything when it is completed(all in 2011) and in operation or do I drag it out with the date of each receipt (2010 & 2011)?

I understand this is a lot to ask of you and will understand if above and beyond your consideration. Thank You.

[TomCopeland]

Dedicated 100% business space

Here are my answers.
1) Can you count the hours your husband works remodeling a basement room that will be used 100% for your business? Yes. It doesn't matter if day care children are upstairs or not, it still counts as hours.
2) Can you deduct 100% of the costs associated with installing a new bathroom that will be used 100% for your business? Yes. As a home improvement you will have to depreciate these costs over 39 years. Doing this work will have no impact on your taxes when you sell your home. This is because you won't owe tax on the profit on the sale of your home as long as your profit is less than $500,000 (which I assume is true). Home improvements actually help reduce the profit on the sale of your home.
3) An egress window should be treated as a home improvement and depreciated over 39 years. If it was put in because of your business, I'd claim 100% of the cost and then depreciate it over 39 years.
4) I would wait to claim expenses on the basement area until the project is complete, since children aren't using it yet. Count your 2010 expenses on your 2011 tax return.