Update: After further research I have made a change in this article to include land improvements and home improvements as eligible for the new $2,500 rule. See my article: “Clarification of the $2,500 Rule.” Recent major changes in depreciation rules affecting family child care providers are both welcome and somewhat confusing. They are welcome because they eliminate the need to depreciate many items, saving providers the headache of record keeping and increasing their current tax deductions. But one of the changes is confusing and it’s not clear how it applies to providers. The general rule is that items purchased for your business that last longer than one year and cost more than $200 must be depreciated. That is, instead of deducting the cost in one year you spread the deduction over a number of years to reflect the life of the item. The new rules have drastically reduced the number of items that you must depreciate. Here are the categories of items that are subject to depreciation rules:

Office Equipment (computers, printers, copiers, etc.) If an item individually cost less than $2,500 you can deduct it in one year. Remember to attach a statement to your tax return electing this rule. If an item individually cost more than $2,500 you must depreciate it over 5 years. If you purchased it new and used it more than 50% in your business, you can use the 50% bonus depreciation rule.harga ac portable sharp If you purchased it new or used and use it more than 50% of the time in your business you can use the Section 179 rule and deduct the business portion in one year.cost of 1.5 ton ac compressor Personal Property (furniture, appliances, playground equipment, etc.)condensation ac unit basement If an item individually cost less than $2,500 you can deduct it in one year.

Remember to attach a statement to your tax return electing this rule. If an item individually cost more than $2,500 you must depreciate it over 7 years. If you purchased it new you can use the 50% bonus depreciation rule. Land Improvement (fence, patio, driveway) If it costs more than $2,500 you must depreciate it over 15 years. Note: See below for a situation where you may be able to deduct land improvements in one year. Home Improvement (remodeling, replacing roof, adding an addition) If it costs more than $2,500 you must depreciate it over 39 years. You cannot use the 50% bonus depreciation rule. Note: See below for a situation where you may be able to deduct home improvements in one year. You cannot use the $2,500 rule or the 50% bonus depreciation rule. You must depreciate your home over 39 years. A repair can be deducted in one year, regardless of the cost. A home improvement must be depreciated over 39 years. New IRS rules have expanded the definition of what is a repair vs. a home improvement.

Now, under certain circumstances, the following could be considered as repairs: insulation, new windows or doors, new wood/tile floors, remodeling of a basement. See my article, “When is a Home Improvement Now a Repair?” It’s not clear if the following are repairs or home improvements: new furnace, new air conditioning unit, hot water heater, bathroom remodeling, etc. I will continue to try to seek clarification on this and will update providers when I get additional information. Talk to your tax professional about whether your expense is a repair or improvement. Safe Harbor for Small Taxpayers: Home and Land Improvements You may be able to deduct home and land improvements in one year under the following conditions: The combination of the cost of home and land improvements and house repairs in one year is the lessor of 2% of the adjusted basis of the home or $10,000. If so deduct in one year. See my article “When Can Your Home/Land Improvements Be Deducted in One Year?”

Adjusted basis of home = purchase price of home, plus home improvements made before and after the business began Example: $250,000 purchase price + $50,000 home improvements before 2015 = $300,000 x 2% = $6,000 Therefore, if a provider spent a total of less than $6,000 (the lessor of $6,000 and $10,000) on home and land improvements and house repairs in 2015 she would qualify for this rule. If her expenses were $6,500 this rule would not apply and the first $6,000 could not be deducted in one year. Depreciation is the most complicated area of the tax law! These new changes do make it easier to deduct items, so it’s to your benefit to take advantage of them. I’ve attached a handout that summarizes these rules that you can share with your tax professional or use in a training workshop. My 2015 Family Child Care Tax Workbook and Organizer has a chapter on depreciation that explains these rules in more detail. ‹ A Guide to TurboTax 2015 – Part IIA Guide to H&R Block Premium 2015 ›Categories: Depreciation and Home, Record Keeping & Taxes

Thank you so much for getting this all sorted so quickly! I'm very impressed with the results of your report and your service overall.- David, Tuggerah NSW Thank you for completing the reports. We really appreciate the ease and timely manner in which it was all organised. It has been a pleasure using your service.- John & Susan, Turramurra NSW Thanks again for all your help in getting these done. You have been fantastic to deal with and without a doubt I will be recommending your services any time the opportunity arises. Keep up the good work guys - it was top service and I knew I was in good hands.- Winter, Brunswick East VICYou did a great job and I am really happy with it and the deductions. Thanks also for identifying the non-deductible items on the spreadsheet. I’ll keep MCG Quantity Surveyors in mind for any Depreciation Schedules for my portfolio and other property purchases in the future.- Ben, Mt Warren Park QLD Thanks Mike, really appreciate your super speedy turn around after only sending through my final info on Monday.- Anneli, Byron Bay NSW