Hi Carl,
Thank you @Carl for the very clear answer. I think i will forget that startup cost deduction.
As a practice, I pretend the ADU is put in service on July 1st 2020 and added the ADU to my 2020 tax return to see what I can deduct. I followed your advice to treat the ADU as a "unit in a duplex".
Using square footage, I counted the rental percentage as 40% of the entire real estate (Primary Residence + ADU)
For this ADU, I added the LAND COST to be $A. The COST to be $A+$B. As you predicted the 2020 rental depreciation is $B/27.5 * 0.5. where the 0.5 comes from being in service for half a year. so this makes sense.
Question 1: Please tell me if my assumption is correct that the tax law allow me to deduct 40% of the property tax, mortgage interest and insurance for the entire real estate(Primary residence + ADU) as the ADU expense.
(please let that be YES =p)
(Here comes my question)
With that assumption, I entered all the expense such as the property tax($16K), mortgage interest($12K) and insurance($2K). Since turbo tax will be doing the partition for me using that 40% number, It asked me to enter the total amount. This total amount is what the ADU+Primary Residence see FOR THE WHOLE YEAR = $30K. What turbo tax did is to take $30K * 40% = $12K and call that the expense for the ADU. But it didnot account for the half a year of in service time. For the first year, this is tricky
Question 2: How should i do this? Should I
take half of property tax and put $8K in ADU and $8K in primary =>(enter $8K only for primary real estate tax)
take half of mortgage interest and put $6K in ADU and $6K in primary =>(change mortgage interest 1098 entry to half)
take half of hazard insurance and put $1K in ADU and $1K in primary =>(none entered for primary house insurance any way)?
or are there better ways
Question 3: I imagine this is not a problem when the ADU is rented for an entire year so i can just enter 100% into turbo tax and let it use the 40% multiplier. This is assuming the answer to Question 1 is YES.
thank you so much for patiently helping us newbie.
Hi@Dtee ; were you able to deduct a portion of your total property tax/mortgage interest as the ADU expense when the ADU is rented while you live in your primary residence? thank you.
Frank
