I only retain less than 20% of what I just read
Just print it out. Then if necessary replace my numbers with yours and do the math. Perfection in that first year is not an option - it's a must. As I'm sure you're aware, even the tiniest of mistakes will grow exponentially over time. Then when you catch it (if the IRS doesn't catch it first) the cost of fixing it will be high.
I see why you're treating the ADU as a physically separate unit now (which is perfectly fine to do) since the main unit was already a rental. I also assume you know how to "split the land" correctly in the program so as not to screw up the cost basis which will screw up depreciation on the main unit. It can be tricky in the program, but it's doable. If you need help with that, then I need to know the in service dates for both the main unit and the ADU. Additionally, I would need to following:
On main unit:
- In service date
- Cost (from year placed in service) This cost is the *TOTAL* cost upon acquisition - land and all.
- Cost of Land (From year placed in service)
- Cost of the property improvements (the addition)
- In service date of the property improvement on the main unit.
On ADU:
- In service date
- Cost (This would be the cost you actually paid for the structure only)
There's actually more than one way to handle this. But you and I have only discussed one way, which is the physical separation of the units between columns A and B on the SCH E. In my personal opinion that would seem more preferable as it allows better flexibility with future possibilities down the road.
