Hello,
We run a small family daycare and we were temporarily closed throughout 2023. We plan to reopen this year.
We made capital improvements in 2023 to increase our daycare capacity (new fencing in the backyard, artificial turf, and labor). I understand that capital improvements cannot be depreciable until placed in service i.e. 2024 when we reopen. Just want to confirm this is correct.
Since we were not operating in 2023, should anything be reported for business income and expenses?
If you had no income or expenses for the business in 2023, you should still include a Schedule C with your tax return. Otherwise, the IRS may have questions for you.
You are correct that the depreciation of business assets begins on the date they are placed in service.
It might be useful to review your last tax return to be sure there aren't any recurring business expenses that you can report for 2022. Licenses, taxes, maintenance, utilities, etc., may continue even though you are temporarily closed.
Thank @PatriciaV .
To confirm, even if we were not operating in 2023, can we still expense property tax and mortgage interest? This expense will be prorated on the sq ft we use exclusively for the daycare we've done in the past.
Yes, you can still deduct your property tax and mortgage interest. However, this will likely result in a Net Operating Loss (NOL) since you have no income for the year. This NOL may be carried forward to offset your income in a future year.
See HERE under " Home mortgage interest Real estate taxes" pgs 18 &19. Also, see
See HERE under "Worksheet 1 "Figuring your NOL deduction" and how to deduct a carryforward "Deducting a Carryforward" for more information.
[Edited 02/14/202 1:48 pm PST]