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New Member

Detached Accessory Dwelling Unit - Short Term Rental

For a remodeled accessory dwelling unit (shed) used as a short term rental on our property:
*The unit is only used for short term rental.
*Remodeling Costs- Do we only enter the costs for permits, electrical, walls, flooring, plumbing, and building supplies to get the rental as livable space? We initially entered all of the expenses here, but shows it will depreciate the costs over 27.5 years.
*Instead, should we put the expenses for the furniture and supplies (beds, linens, t.v., etc) in the 'Expenses' section?
*Property Tax Values- The dwelling is 192 sq ft, but do we enter the full assessed land value from our property taxes, or only a percentage of the land value based on the size of the shed?
*Improved Value (buildings, structures, fences, decks)- What does 'improved value' mean, and what do we enter here?
*Can we deduct a portion of our property taxes, utilities, insurance, etc. for the detached dwelling  (we have a home office in our main home for a separate business, and deduct a portion of utilities, property taxes, insurance based on the size of the room used).

Thank you for helping us navigate our first year with these start-up deductions, and how it works.
1 Reply
New Member

Detached Accessory Dwelling Unit - Short Term Rental

Any work you do to get the property ready for renting is classed by IRD as capital improvement, and is not fully deductible. You have to add the costs to the original purchase price, and depreciate the total (purchase price + improvement cost) [separate land value ,land is not depreciated]over the life of the property (from the date placed in service (ready to rent)

The dwelling is 192 sq ft Property Tax Value as a percentage in relation to your primary.[less the home office area ] LOL sharpen you pencil. That percentage can be used for utilities if no separate meter.

Furniture,appliances  used in rental property 5 years depreciation, spreading the initiate cost at start and then as you have  rental income;  you will be in a better position to expense replacement under the new election that is available.. 

The county tax assessor going to love you, they will probably give you a good basis as soon as they reassessment of the area.

Good luck

Landlords's handbook.

Publication 527, Residential Rental Property

Rental Property Income and Expenses

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