You may consider amending your 2022 return to report the original home/ADU as two properties. The issue now is that you started depreciation on the entire property and cannot easily change that. It doesn't matter that they are both on the same tax parcel. As long as you can allocate the basis, income, and expenses between the two units, you will be in a better position to report the conversion on the current year tax return.
Your other option is to report that the original property is not used 100% as a rental this year. The new business use percentage would be calculated based on square footage of the house divided by the total square footage.
- Enter this percentage for the Rental Asset (Depreciation) on the page "Tell us more about this rental asset."
- Check the box for "No, I have not always used this item 100% of the time for this business" and for "I first used this item at least part of the time for this business, and also used it for personal purposes."
- Enter the new business use percentage in the box "Percentage of time I used this item for business after placed into service in 20XX" (this year).
If you rent the ADU in the future, add this as a separate Rental Property. Depreciation will begin as of that date because you have already reported depreciation on the unit with the residence in the past. Hopefully, you won't sell the ADU separate from the residence, as this would greatly complicate calculating the gain or loss on the sale.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
