if this is used in conjunction with your main business, you can include the income as business income. You can claim the mortgage interest as part of the mortgage interest in your house.
You are correct in that you will consider this as a business asset that needs to be depreciated over a period of time.
if this shed however is incidental to your main business, you would need to report this under rent/royalty income in a Schedule E and not a Schedule C.,
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
