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IO_atx
New Member

Should I include property tax and mortgage interest as expenses for my ADU?

I built an Accessory Dwelling Unit on my primary residential property last year, and rented it out on Airbnb.  The ADU is about 1/3 the total livable floor space on the property.  Should I include 1/3 of the taxes and interest from the mortgage as expenses on the ADU?

 

 

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4 Replies
ColeenD3
Expert Alumni

Should I include property tax and mortgage interest as expenses for my ADU?

Yes, you can do that. If your mortgage and taxes cover the two properties, you must prorate the expense.

 

@IO_atx

Carl
Level 15

Should I include property tax and mortgage interest as expenses for my ADU?

Also, don't forget insurance. Homeowner's insurance is not a deductible expense on "personal use" property. However, if you have one policy that covers both your personal property and  your ADU, you can claim the percentage of your insurance that cover's the ADU.

Generally though, I would expect you to have a physically separate insurance policy for the ADU. If so, then the entire cost of that policy is deductible.

The standard homeowner's insurance policy does not cover losses incurred with non-personal use. That's why I would expect you to have a separate policy for the ADU.

 

Hal_Al
Level 15

Should I include property tax and mortgage interest as expenses for my ADU?

If the mortgage existed prior to construction of the ADU, you may only  deduct the portion of the mortgage interest attributable to the land the ADU sits on.  That is, since none of the borrowed money was used to built the ADU, you cannot use a building sq. ft. ratio

IO_atx
New Member

Should I include property tax and mortgage interest as expenses for my ADU?

Thank you for the response, I do have a separate policy on the ADU.

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