One of the benefits of owning an adult family home is the exclusion of certain income received by the owner. You should check with your CPA or tax preparer for more information and to confirm that your income is, in fact, exempt. There are many sources of information about this unique benefit, and the Internal Revenue Bulletin found at the link below gives a good explanation.
The rule basically says that when a person provides “foster care” in their own home, the revenue received for resident place in the home is not included in the person’s taxable income. So this only appears to apply to those owners who live in their adult family home along with their residents – and that is many.
If you own an adult family home and you’re not familiar with this tax rule, you will want to learn more right away. Check with your tax preparer to find if you qualify and, if you do, if you’ve taken advantage of this benefit. You might even have a refund coming if you need to go back and correct tax returns from prior years.
Karen Grant says
please inform Myself of the meaning of family’s adult Home’s and the tax’s breaks ?
My understanding is that If I was to refurbish my home or building in to A family adult community that there are tax’s breaks if I provider three meals a day and have a min-store and laundry room in bulding and as very small chaple .that is call a adult family home, a group of individual needing each other . with out Medicaid and medicare.
Karen – There are many tax issues related to owning an adult family home. If you refurbish a home and provide services to residents (as you mentioned), there may be amounts you can deduct from your taxable income – check with your tax professional. The point of this article had to do with a special exemption that has been available to owners of an adult family home that also live in the home themselves and keep it as their primary residence. In those cases, my understanding is that the income may not be taxable at all if you meet the requirements. That’s even better! Hope that explanation helps make this more clear. Mike
caryl elliott says
hi mike. my wife and i own an adult family home. we have 6 state pay residents. is the income we receive for their care non taxable? do you do taxes for afh? the residents have a co pay, a portion of their care costs. is this taxable?
Caryl – Even though I’m a CPA, I don’t do taxes because they aren’t my specialty. In fact, I hire a CPA to handle that side of my own biz. The article on this website is all I know on the issue of income tax and Adult Family Homes, and I need to be careful offering other information because tax laws change all the time. I would share our website article with your tax preparer or CPA to confirm whether your AFH income is or isn’t taxable. My guess is that it’s not – but make sure to confirm. Mike
reha burrell says
I am licensed for 4 with the bedroom for 6. I have 2 right now. to sell how do you put a price on the business only.
Reha – Great question. And it’s a tricky answer because it depends on a few things. The most important thing is whether your business is making money – if it’s not, then few people will find much value in it because, at least in part, they may need to support the negative cash flow after they take over. If you have a substantial amount of furnishings and equipment, there may be some value assigned to those too but only a fraction of their cost when new. If you have a favorable lease, that helps too. In general, if you don’t own the real estate, the business is often worth two or three times the net income. Mike