100% of home used for Daycare

[GTS1101]

I have a client that might be getting married this year. She operates a daycare out of her home. Currently we are writing off about 26% on form 8829 for the home office expense. If they get married she will move into his home and use her home 100% for daycare. I would assume then she could write off the mortgage interest and taxes and utilities all 100% because the whole house would be used for daycare only.

Her fiance was wondering if she would have to charge her daycare business rent to use her home as a business. I would say no. All of the mortgage and other expenses are 100% write off. She just converted the home from personal use to 100% business use. Any thoughts or ideas? Anybody have or had a similar situation?

Thank You!
GTS1101

[Gretel]

I don't have an answer but two thoughts crossed my mind.

1. You cannot charge rent to yourself, even though I would consider this as a commercial building now.

2. Once she moves out of her home form 8829 doesn't apply anymore since it is not her home and also not her second home since use 100% biz.

I would say unless she incorporates biz (then she could charge rent) all expenses for home care house will be going 100% on Sch. C, going out on a limp here. Be careful with mortgage interest. Any equity mortgage interest not used for house is non deductible then.

[taxea]

I would ask whether the "clients" will be using the entire house. All the bedrooms? All the bathrooms? Kitchen solely used for business? All the bathrooms?
Is any portion of the residence going to be for personal use? Will anyone be making personal use of the home when it is not being used for daycare?

[erchess]

Disagree in part and agree in part

I would ask whether the "clients" will be using the entire house. All the bedrooms? All the bathrooms? Kitchen solely used for business? All the bathrooms?
Is any portion of the residence going to be for personal use? Will anyone be making personal use of the home when it is not being used for daycare?

I quite agree that any personal use of the building has to be considered although under the day care rules as I understand them what matters is what area do the children use when they're there.

I would say that if the house is not used for any personal purposes then the fact that some rooms are seldom or never used has no tax consequences.

[PIGLEE]

If the children have access to all of the home then 100%. But then for daycare there is one more caculation needed. You have to allocate the number of hours in a year, by the number of hours children are in your home. So noway could it be 100%, then there are limitations to the amount of income earned.

Then there would be the question does she an owner on the home?? I just wanted to clarify the above statement.

[Lion]

No hours

I think the hours calculation is for personal and business use. It sounds like the house will now be a commercial building only and no longer a residence. She should check into local zoning regulations if it is no longer owner occupied.