It depends. If the ADU will have separate income and expenses, you may wish to enter this as a new rental property. This treatment will simplify your recordkeeping and eliminate the need to allocate costs between the two rental units. Also, you may have a different number of rental days for each property, which is a factor in some calculations. Although it's a rare event to sell an ADU separately, setting up a new property now could save you headaches later.
It's not necessary to report land cost for a rental property since land is not depreciated. Just remember how you reported the basis for the property if/when you do sell it.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
