Tenant uses home for daycare

[think2much]

If the tenant uses the rental home mainly for daycare, can the landlord still treat the home as a "residential rental"? In general, would a tenant's business use of the property affect the "residential" vs "nonresidential" depreciation classification for the landlord?

[AZ-Tax]

Tenant use of rental for daycare

If the tenant does not own the home, then the tenant is not entitled to any depreciation. The rent the tenant pays potentially is a business related exps for the day care. As Jesse said earlier in a post, if I am wrong, I am sure someone here will correct me on this board.

[thomtax]

If the tenant does not own the home, then the tenant is not entitled to any depreciation. The rent the tenant pays potentially is a business related exps for the day care. As Jesse said earlier in a post, if I am wrong, I am sure someone here will correct me on this board.

I believe that you may have possibly misread the post. The question was not about the tenent taking depreciation, it was about the "landlord's" life taking depreciation.

[think2much]

Tenant uses home for daycare

Yes, only the landlord is entitled to the depreciation. But the question is whether the landlord depreciates the home as a "residential" (27.5 Yrs) or a "nonresidential" (39 yrs)rental when the tenant uses it mainly or solely for business.

[Jesse]

I would say your client is renting it as residential and therefore 27.5. If tenant is running a daycare that is by tenants choice not your clients.

[Koss]

Depreciation

The landlord should continue to treat it as residential rental property.

If the tenant actually lives there, the use of the premises for daycare does not transform the property into business-use property. The use of the premises for daycare is incidental.

The landlord is not operating the daycare business. And I'm fairly certain that the landlord is using a residential lease document--not a commerical lease. The tenant at some point may choose to cease operating the daycare business, but continue living there. The tenant is not going to choose to cease living there but continue operating the daycare business.

The property is zoned residential. (The original post didn't say this, but I think it's a reasonable assumption.)

The tenant is operating a business within their home. That has absolutely no impact on how the landlordi/treats the property for tax purposes. The tentant is not living in a daycare facility. They are living in their home, which happens to be used for daycare for certain hours of the day. It remains residential rental property.

I could try to express the same concept a couple different ways, but it's going to have the same result. It's kind of a cart-horse, chicken-egg question. The primary use is residential. Period. Jesse beat me to the enter key, but we're saying the same thing.

[think2much]

Tenant uses home for daycare

Thanks Koss and Jesse. This is very helpful.