You don't allocate just the debt. You allocate based on the "ENTIRE" cost basis Your cost basis is $1.2M. Period. With 25% for the ADO, that means you allocate $300,000 to the ADU as the cost basis on the SCH E. Of course, a portion of that amount will be allocated to the same percentage (25%) of the land. But the program will work you though that.
The remaining 75% of your cost basis is not entered anywhere on your tax return. But to clarify, depending on your situation the program "MAY" ask for the total cost basis, and then ask you what percentage of the property is business use (rental). In your case, you'd answer with 25% and the program (not you) would allocate 25% of your cost basis ($300,000) to the rental. But weather the program works this way "FOR YOU" depends on how you answer questions and the data you provide to the program.
I also can't stress enough the importance of reading "EVERYTHING" on every screen before you enter data or make a selection. Also, pay close attention to wording. There is a difference between "select all that apply" and "select the one that applies".
