Hi Carl,
I think I got a good grasp of your teaching now... lets try another round 🙂
On main unit:
- In service date: 1/1/2011
- Purchased date: 12/1/2010
- Cost (from year placed in service) This cost is the *TOTAL* cost upon acquisition - land and all: $350k
- Cost of Land (From year placed in service): I don't know... $245k per my tax guy, $290.5k per 2011 tax bill percentages
- Cost of the property improvements (the addition): $105k per my tax guy, $59.5k per 2011 tax bill percentages
- In service date of the property improvement/room addition on the main unit: 11/1/2019
On ADU:
- In service date: 11/1/2019
- Cost (This would be the cost you actually paid for the structure only): $150k
I paid $350k for the property in 2010 (the home has been a rental since purchased), and the only reason why I used $105k for the improvement is because that's what my tax guy used in 2015 & 2016 tax returns. Now that I am calculating the improvement to land costs per 2018-2019 tax bill percentages ( 89% [$362k] land, 11% [$43k] improvement); so 89% of $350k is $311.5k for land, and 11% is $38.5k for improvement. Which is a huge difference from $105k used 3-4 years ago for improvement to $38.5k per 2018-2019 tax bill... I'm lost on this portion and don't know if my tax guy used the market reference or insurance replacement cost for the improvement... should I correct this now to the percentage's cost per the tax bill for 2019 tax return? It looks weird to me how my land to improvement costs flop with your example and other posts... my land cost is way more than my improvement cost...
Organized questions/response:
1. What about the cost of paving common driveway for ADU and main unit ($10k)? Can this cost be split 50/50 and added to ADU and main unit improvement costs for depreciation? So $155k for ADU + driveway, and $50k (room addition + driveway) + $105k (or a better representing cost of the original improvement) = to obtain the cost of the improved main unit?
2. Since I've been depreciating this rental starting 2011 for an amount of $3.8k/year. Now do I reset the 27.5 years term due to the room addition? So... $105k (or a better representing cost of the originally purchased main unit) - (8 years X $3.8k) = $74.5k (left to be depreciated on the originally purchased main unit)
$74.5k + $45k (room addition) + $5k (half of shared driveway) = $124.5k will potentially be the new, cumulative, improvement cost of the "improved" main unit to be depreciated for 2019 tax return...?
3. I am assuming two things here. If either assumption is wrong *LET* *ME* *KNOW*! It "might" matter!
- The main home (which is now a rental) was used to secure both HELOCs...
I used the original main unit to secure a HELOC for the ADU ($150k). The room addition to the main unit is from a HELOC ($50k) secured by a different rental property. I assume I'll have to allocate a percentage of the interest (based on the percentage of the total HELOC amount) used for the room addition as interest expense for the "improved" main unit. Then expense interest for the $150k to fund the ADU. Is this correct?
Thank you!
