Sch C and business use of home

[taxesbydot]

New client doing Adult Foster Care. I need advice on whether or not to use the standard or simplified method for business use of home. Prior preparer did the old method and wiped out all income, which would happen again if I use the same method. If I use the simplified method they will qualify for both child tax credits and EIC. 

[Terry53029 · Accepted solution]

Do the way that has the best outcome for your client

[taxesbydot]

Thanks. This time of year I second guess everything.

[taxesbydot]

Just entering assets for depreciation and lo and behold, the home is on the depreciation schedule. I deleted the home office worksheet. Was that the proper place for it to be listed?

[qbteachmt]

It's not like the mileage allowance vs actuals, where you pick and stick with a method. Have you compared the two outcomes?

[taxesbydot]

Definitely. Far better off using the simplified method. My problem now is it appears that depreciation was taken on the 4562 and on the form 8829. Since 2020. So schedule 3115? There is also a separate space being used for a beauty salon just to complicate matters. I'm thinking extension.

[qbteachmt]

Remember the requirements. Salon could meet the exclusive use test.

Foster care payments are not usually taxable. That is through an agency. Or, are they offering day care, not through an agency or with a care plan or placement? Fully residential or not? Group home placement?

[BobKamman]

It would be helpful if we had more information on what the taxpayers are doing that they call "adult foster care."  Those payments are almost always taxable, if what is meant is "a type of long-term care arrangement where adults who need assistance with daily living activities receive support in a home-like environment, often with a focus on personalized care and community integration." 

If that's what is involved, do you count just the bedroom(s) assigned to patient(s), or do you follow the rules for daycare?  Code Section 280A doesn't limit them to children.  They apply to a "taxpayer’s trade or business of providing day care for children, for individuals who have attained age 65, or for individuals who are physically or mentally incapable of caring for themselves."

[taxesbydot]

It is a group home setting with placement through a state agency.

[TaxGuyBill]

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@taxesbydot wrote:

My problem now is it appears that depreciation was taken on the 4562 and on the form 8829. Since 2020. So schedule 3115?

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No, switching from Actual to Simplified (or Simplified to Actual) is not a change in accounting method, so Form 3115 is not needed.  You can switch back and forth without doing anything special.