Discussion:Adult Home Care Facility deductions.

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Discussion Forum Index --> Basic Tax Questions --> Adult Home Care Facility deductions.


Discussion Forum Index --> Tax Questions --> Adult Home Care Facility deductions.

BusTax101 (talk|edits) said:

27 September 2007

My client converted their home to a adult home care facility. Am I correct that they could take deductions for their home expenses such as utilities, repairs, depreciation, etc. based on the percentage of square footage used by their clientele even if they use it also. Say that their bedroom is the only off-limit place for their clientele, the rest of the home is available for everyone. So that percentage of their expense total would be deductible. Would someone verify this? I went to IRS website and google but couldn't find anything on adult home care facility accounting. The only thing I could find was on child daycare homes.

Kevinh5 (talk|edits) said:

27 September 2007
figure out what percentage meets the regular and exclusive use test - probably only the 'inmates' bedrooms

you could look at the MSSP for Bed & Breakfasts for similarities

BEGooding (talk|edits) said:

September 27, 2007
Based on what you said i.e. "....the rest of the house is available for everyone". If that everyone includes you, then I would say that NONE of your expenses for the house are deductible since there is no part of the house that is used EXCLUSIVELY for business.

Death&Taxes (talk|edits) said:

27 September 2007
Too strict everyone! Publication 587 does not specify that daycare must pertain to solely children. "You must be in the trade or business of providing daycare for children, persons age 65 or older, persons who are physically or mentally unable to care for themselves." This is page 11. If you meet these definitions then I would definitely give that a read.

Kevinh5 (talk|edits) said:

27 September 2007
David, are you some sort of a liberal????


(Good thinkng, anyway.)

but this is a place where people stay overnight - not just daycare

Dennis (talk|edits) said:

27 September 2007
Unduly harsh. Once converted, is this really a personal residence any more? If not, and somebody has to be on duty 24/7 ... ♫

Death&Taxes (talk|edits) said:

27 September 2007
Seriously, folks, I suspect this is another area where tax codes have yet to catch up with real life. I see a facility nearby on Route 9 and see people there as late as 7pm, and I have never checked later. Essentially in the instant case, the caretakers will be living in the place of business for the convenience of their employers, even if the employer is the same person.

BusTax101 (talk|edits) said:

28 September 2007
Thanks for all your input. The problem still is these people (elderly,physically cannot care for themselves) stay overnight and everything I read has to do with daycare facility. This is licensed as an adult home care facility. The only thing I find with the IRS is daycare facility. Kevin, I will look at your suggestion of the MSSP for Bed & Breadfasts. Death & Taxes, right now I feel I should follow the guidelines in Pub. 587 for daycare facility. Dennis, do you feel it should be treated like a business? The only problem I see is that the couple still live there. If anyone else has dealt with a similar situation, please respond.

Ksnoopytax (talk|edits) said:

28 September 2007
See Code Sec. 280A(c)(1)

I would agree that any part of the house which is not used exclusively for business would be unavailable for business use of the home deduction. I ran into a similar situation with a bed and breakfast. Some clients of mine wanted to open a bed and breakfast in St. Louis. After some research they found out that in order to open the bed and breakfast the city required them to live in the house which made all those expenses non-deductible.

Ksnoopytax (talk|edits) said:

28 September 2007
However, since this is a daycare facility and not a bed and breakfast I would look at Pub 587. I hate getting sidetracked:(

Dennis (talk|edits) said:

28 September 2007
I see no reason to make a determination that an adult care facility that provides living quarters to staff is a personal residence. Client should be informed that IRS may take that position, but you don't represent the IRS.

Death&Taxes (talk|edits) said:

28 September 2007
Substitute adult care in the day care worksheet provided by Proseries and you get some pretty amazing numbers, and that more or less reflects this situation. The more I thought about this last night, the more convinced I am that tax regulations will move toward treating this situation like day care, with some allowance for the personal bedroom but as I noted, the caretakers must be there to meet the conditions of the job. You might see if there is anything on 'half-way' houses or the like.

btw, the term 'inmates' is not very kind. We may all end up there, except for those among us who know how to bill and save.

Kevinh5 (talk|edits) said:

28 September 2007
David I use the term knowingly. My sister works at one such adult care facility (live in) and my father is in a nursing home right now. Believe me, the residents (who are aware of their situation) feel that they are inmates - their families can't take care of them, so here they are. Maybe no locks, but the feeling is the same for them.

LisaC (talk|edits) said:

25 February 2009
Same question for my client here in CA - she has elderly adults living in her home who cannot live by themselves. They live there 24/7 and she provides room and board, care, transportation, etc to care for them. In using the "daycare" worksheet, since all rooms except her bedroom, are used by her "boarders", then her business use % are quite high. I've checked the IRS MSSP and Audit Guides and nothing is showing up. I'm not sure whether to claim her income/expenses on a Schedule C or Schedule E. Any updated thoughts since the last post in 2007?

Riley2 (talk|edits) said:

25 February 2009
No way to put this on Schedule E since services are provided.

Also, the 280A limits will probably not apply to those rooms that are used exclusively by boarders. See Prop. Reg. 1.280A-1(c)(2).

BusAd (talk|edits) said:

25 February 2009
I assume that also means that you would depreciate the rooms used exclusively by boarders over 39 (not 27.5) years?

Would you then use the "daycare method" to calculate the business portion? How do other handle that? Please, share.

Ddoshan (talk|edits) said:

25 February 2009
Any of this fall under the Foster Care rules. If less than 5 adults or something like that and placed by a qualified agency. Income not taxable.

BusAd (talk|edits) said:

26 February 2009
If income is not taxable, does that means that expenses aren't deductible?

Deback (talk|edits) said:

February 26, 2009
I divide the number of paying residents by the total number of residents and apply that percentage for the mtg interest, property taxes, house insurance, depreciation, repairs, utilities, trash, and food deductions.

Deback (talk|edits) said:

February 26, 2009
on Schedule C.

Yes, BusAd, depreciate the home (less the land) over 39 years.

BusAd (talk|edits) said:

26 February 2009
Thanks for the clarification, guys.

Smokeytax (talk|edits) said:

26 February 2009
Going forward, perhaps it would be worth it to incorporate the business, rent the residence to the corporation, and require some of the the employees, including owners to reside at the business. Then it might be reasonable to apply code section 119.

BusAd (talk|edits) said:

27 February 2009
Isn't it true, however, that if you rent your residence to the corporation (your employer) and reside on the premise, you would have to include the rental income on your personal return and NOT be allowed to deduct rental expenses (mortgage interest, utilities etc.) per Sec. 280A (c)6 ?

Smokeytax (talk|edits) said:

27 February 2009
You do deduct the mortgage interest and property taxes, but not the utilities, repairs, insurance, depreciation etc.

Some feel that a way around this is to have the corporation pay for those expenses.


Kendaniel (talk|edits) said:

29 June 2010
Has anyone looked at 280A(f)(1)(b). If so, what do you think this says or means? Does this apply to an Adult Foster Care facility in the State of Michigan and does this take it out of this Code Section?

EZTAX (talk|edits) said:

29 June 2010
Make sure to follow up on Ddoshan's point above and check out if any of this can fall under the foster care payment rules found in section 131.

Busad "If income is not taxable, does that means that expenses aren't deductible?". - yes see technical advice memorandum number 9434005 5/20/94

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