Writing Off The Mortgage

[blessed mom]

So I was thinking I will be able to deduct the time/space percentage of my mortgage but when I was looking through Tom's calendar it asks for the mortgage interest. Does that mean I can only write off the time/space percentage for the interest on the mortgage?

Also, we have "special assessment" property taxes in our neighborhood. Can I deduct that as well as the "regular" property taxes?

Thanks guys...trying to get organized since I have a half day with kids today.

[Crystal]

Yes, you can only wirte off the business portion of the interest on your mortgage...not the principal....which I think is ridiculous, but those are the IRS rules.

I beleive you can write off the business portion of the special assessment tax.

[TomCopeland]

Mortgage

You can deduct the t/s% of mortgage interest, but you can also depreciate your home over 39 years using your t/s%.
You cannot deduct any portion of property assessments (sidewalks, sewer, other improvements made to your land made by local government).

[Abigail]

When you depreciate your home, do you do it using the purchase price or the actual value of the home? Then, each year does that value change or do you do the same $ amount for all 39 years?

Can you give an example of how you would depreciate a house?

[TomCopeland]

Depreciate a home

When determining how much to depreciate for your home, use the lower amount of the purchase price of your home or the fair market value of your home when your business began. This amount will stay the same each year.

Example: Purchase price of home in 2001: $200,000; Fair market value of home in August 2011 (month business began): $230,000

2011
$200,000 x 40% (time-space) = $80,000
$80,000 x .963% (first year depreciation based on month business began) = $770

2012
$200,000 x 40% = $80,000
$80,000 x 2.654% (amount to claim for a full year under 39 year depreciation rules) = $2,123

2013
$200,000 x 42% (time-space went up this year) = $84,000
$84,000 x 2.654% = $2,229

[Blackcat31]

You can deduct the t/s% of mortgage interest, but you can also depreciate your home over 39 years using your t/s%.
You cannot deduct any portion of property assessments (sidewalks, sewer, other improvements made to your land made by local government).

How does this work for me? I own a separate home specifically for child care ONLY. Can I deduct 100% of my mortgage? How about the assessments, repairs etc or property taxes?

[TomCopeland]

Home deduction

If you do child care in a home that is used exclusively for your business, then you can deduct 100% of the costs of operating your business out of that home: property tax, mortgage interest, utilities, repairs, insurance, etc. You still must depreciate your home over 39 years. So, in my example above, use $200,000 as the number you depreciate each year.

[care-care]

isnt it the value of the house minus the property?

[TomCopeland]

Home depreciation

Yes, you depreciate your home after subtracting the value of the land at the time you first started using it for your business. If you don't know the value of the land, contact your county tax assessor office and they should be able to answer this question.

[Abigail]

Example: Purchase price of home in 2001: $200,000; Fair market value of home in August 2011 (month business began): $230,000

2011
$200,000 x 40% (time-space) = $80,000
$80,000 x .963% (first year depreciation based on month business began) = $770

2012
$200,000 x 40% = $80,000
$80,000 x 2.654% (amount to claim for a full year under 39 year depreciation rules) = $2,123

2013
$200,000 x 42% (time-space went up this year) = $84,000
$84,000 x 2.654% = $2,229


So $200,000 would remain the same for all 39 years even if the house was valued higher at $220,000 (for example) and even if we finished the lower level adding $10,000 more value (for example).

Where does the 2.654% come from?

How do you find for partial year percentage? I printed a flyer saying I was open for business beginning in October, but I never got my license (not required unless I had 5 kids enrolled) and never had a child enrolled until November. So, even though during October no one came, I still worked on a handbook/contract and finishing the lower level for 20+ hours a week all month while working at my other job. I'm guessing I can add all those hours into my time-space percentage because it was all daycare related. I'm not sure if I can count all the hours I spent staining trim for finishing the lower level. I did 5 hours minimum staining each week.

[TomCopeland]

Depreciation

Example: Purchase price of home in 2001: $200,000; Fair market value of home in August 2011 (month business began): $230,000

2011
$200,000 x 40% (time-space) = $80,000
$80,000 x .963% (first year depreciation based on month business began) = $770

2012
$200,000 x 40% = $80,000
$80,000 x 2.654% (amount to claim for a full year under 39 year depreciation rules) = $2,123

2013
$200,000 x 42% (time-space went up this year) = $84,000
$84,000 x 2.654% = $2,229


So $200,000 would remain the same for all 39 years even if the house was valued higher at $220,000 (for example) and even if we finished the lower level adding $10,000 more value (for example).

Where does the 2.654% come from?

How do you find for partial year percentage? I printed a flyer saying I was open for business beginning in October, but I never got my license (not required unless I had 5 kids enrolled) and never had a child enrolled until November. So, even though during October no one came, I still worked on a handbook/contract and finishing the lower level for 20+ hours a week all month while working at my other job. I'm guessing I can add all those hours into my time-space percentage because it was all daycare related. I'm not sure if I can count all the hours I spent staining trim for finishing the lower level. I did 5 hours minimum staining each week.

Yes, $200,000 would remain the same forever. 2.564% represents the amount that can be depreciated each year over 39 years (2.564% x 39 = 100%)
If you were ready to care for children in October, your business began that month. Yes, count those hours. Don't count hours staining, unless the lower level was used exclusively for business. If your business started in October, use .535% for depreciation in 2011. If November, use .321%.

[Abigail]

How did you find these numbers? use .535% for depreciation in 2011. If November, use .321%

Is this from October 1st or just October in general?

[TomCopeland]

Depreciation

These depreciation percentages can be found in the Instructions to IRS Form 4562 Depreciation. The percentages are monthly percentages that you would use regardless of what day of the month the work is done.