Can 100% of expenses be deducted if home renovations were made for the in-home daycare?

[Mairof]

I have a client who has spent around 40k in home renovations

- Garden and outdoor area were renovated

- She spent money on a room where she will teach the pre-school children. 

The home where she conducts this business is being rented to her. 100% of the home is rented to my client and she uses the home for her daycare/schooling for the kids. 

Can she deduct the 40k renovations she spent in 2021? She started her business in July 2021.

[BobKamman]

That's a lot of money to spend on someone else's house.  What's really going on here?  Is there a related party involved?  Maybe a relative who loaned or gifted the 40K?  When does her lease expire?  Not that it matters -- leasehold improvements are depreciated for 39.5 years, unless there is some exception that allows for a shorter term.  

[Terry53029 · Accepted solution]

That sounds like a lot to invest in someone else's home, and she will have to have a lot of income for a return on investment. You need to familiarize yourself with  Time/Space Percentage calculations (T/S%) for daycare, as some remodeling can be 100%, but usually not all. Hope she is licensed also

[Mairof]

thank you for your information. The client and her husband purchase the home like personal  investment but not belong to the day care business. The day care is LLC and will pay rent to them. 

[Mairof]

thank you so much. The all home is for business

[abctax55]

Beware of the self-rental rules.

[Mairof]

thank you for let me known. Take care