Generally, I hate typing long responses. But when I feel it's necessary I break it down into "bullets" in the hopes of making it easier to absorb, comprehend and understand. So here goes:
First, I'm making some assumptions here.
- What you call "the main unit" was either your primary residence or 2nd home prior to being rented out.
- Both the main unit and the ADU are on the same plot of land for which you receive one single property tax bill each year.
- The main unit and the ADU have their utilities (water, electric, cable) metered separately and independently of each other.
Lets say the main unit originally costs $105k at 1,500 sq ft, the room addition is $45k at 500 sq ft
The cost of the structure (assuming your figure does not include land) is $150K. Period. The fact you may have paid $105K in 2010 and $45K in 2019 doesn't matter for depreciation. Depreciation starts in the tax year the property is placed "in service". Depreciation of the entire structure is based on it's total cost of $150K.
The IRS rules state that deprecation is based on the "LESSER" of what you paid for it, or it's fair market value at the time it's placed in service. I seriously doubt it's fair market value is less than you paid for it. Since you paid a total of $150K in total for that main unit, then $150K will be depreciated over the next 27.5 years.
You can if you want, enter the $150K asset and the $45K asset as separate assets for the same rental if you want. But I wouldn't because it's just more work, and it's yet another item that can lead to human error in the future. I'd combine them and just enter that main unit as one asset with a structure cost of $150K. For the acquisition date, (which the program will ask for) enter the date you *originally* purhcased the property. The purchase/acquisition date has absolutely no impact on depreciation. Remember, deprecation starts when the property is placed "in service" regardless of when you purchased/acquired it.
As a side note, if my assumptions are correct you can also combine everything and report it as a "multi-family unit" and only utilize one column on the SCH E. But if you later decide to move back into one of the units or to sell one of the units, that can create an absolute paperwork nightmare come tax time. Its "doable" with TurboTax; but the potential for human error is extremely high. So I'm assuming you'll report the main unit rental in column A and the ADU rental in column B as a physically separate rental property.
he ADU is $150k
It's now obvious you're including land value in that. So now I"m not clear on how you are comming up with $200K total land value earlier. The ADU is smaller, so why does it get 3/4 of the total $200K land value? Let's change your above from $150K back to $45K "for now". I'll cover how to get an accurate land value later, below.
The ADU will be entered as a physically separate rental unit with it's own land value, structure value, and other expenses that are completely separate from the main unit (including the improvements to the main unit.) It would then appear in column B of the SCH E.
1. Where can I find the accurate cost of my home and the cost of land?
There's nothing to "find" really. Just add it all up.
- You originally paid $105K for the property. (Assuming that includes land now, where as my above numbers do not make that assumption.)
-Next, you paid $45K for an addition to the main unit.
-Next you paid $150K for the ADU.
Your total cost is $300K for both structures, land and all.
2. How do I account for all costs and fees split between 2018 and 2019 to be depreciated?
Start by determining how much of the $300K is allocated to the land. Take a look at your last property tax bill. You will use the numbers on the property tax bill for the *SOLE* *PURPOSE* of figuring what percentage of the property tax value is allocated to the land. You *CAN* *NOT* use *ANY* numbers on the property tax bill on your tax return. That's bacause the property tax bill shows property values "for property tax assessment only" and it's generally 30% or more below the FMV of the property.
So if the property tax bill shows a total value of $200K with an improvement value of $150K, then it's apparent that $50K is the value of the land. (one fourth of what you paid for it in total.) But the numbers are never that easy. So if the total value is $235K with an improvement value of $195K, divide 195 by 235 and you get .829 or 82.9%. It's okay to round that up and call it 83%. So 83% of the tax value is the improvements on the land, and the remaining 27% is the value of the land your taxed on.
Now lets take what you actually paid for the property in total ($300K) and multiply that by 0.27. The answer is $81K and that's what you will allocate to the land. Next, you need to allocate that $81 between two physically separate structures. There's several ways to do it. But since you provided square footage of each unit, I'm gonna use that method.
You have a total of 3000 sq ft with 2000 sq ft for the main unit, and 1000 sq feet for the ADU. 1/3 of $81K is $26,999.99999999 carried out forever. It's okay to round up and that's what I'm going to do.
I'm going to allocate $27K for land to the ADU and the remaining $54K land value to the main unit.
Therefore when entering into TurboTax, what I paid for the main unit including it's 2/3 of the land will be $204K with $54K entered in the "cost of land" box. Note that the difference is 150K which is what I paid for the structure originally including the $45K improvements. The 150K is what will be depreciated over 27.5 years.
When entering the ADU as my second rental property my total cost will be $177K with $27K entered in the "cost of land" box. The difference is $150K, which is what I paid for that ADU. That $150K will be deprecated over the next 27.5 years.
3. Will property tax splits be 1/3 (for ADU, 1,000 sq ft of 3,000 total sq ft) and 2/3 for main unit with room addition?
Short answer, YES!
4. I now pay for 2 different equity loans that funded the costs for room addition and ADU, and mortgage on the original main unit, how should I account for and split up the interest paid to report as expenses?
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
- Every single penny of the $45K HELOC was used to improve the main home (now a rental)
- Every single penny of the $15K HELOC was used to build the ADU.
If the above assumptions are all correct, you will report/claim the primary mortgage and the $45K HELOC interest (reported to you on two separate 1098's) on the main home rental property. You will report the $150K HELOC (for which you will receive yet another 1098) on the ADU rental unit.
I think I've just about covered everything. If any of my data is not useful to you because one or more of my assumptions were wrong, then if you give me more accurate information with actual numbers and better clarity, I'm happy to "do it again" with your more accurate figures.
Finally, remember to keep separate income/expense books for each rental unit, as you'll need it at tax reporting time each year.
**He who claims to totally understand the situation and all aspects of it, is obviously not paying attention!!**
