Recording Costs to Build New Construction for ADU

[TJMADU-2023]

In 2023, I spent about $225K for construction, permits, and blueprints. Need help on how and where to include on my tax return. 

• Permits and Construction started 1/2023 & 2/2023.
• Available to occupy was 5/2023.
• ADU (Rental Unit) built above garage and on same property as Primary Address (which I live in).
• ADU is detached and has separate address and separate metered utilities then Primary house.

I think this is pretty straight forward, just need peace of mind that I am recording it correctly on incomes taxes.

TJMADU-2023

[PatriciaV]

This activity would be reported as a Rental Property and the cost to build the ADU would be recorded as the main asset for depreciation. If there is a possibility of the ADU being sold separately from the primary residence, then you should plat and allocate the land under the ADU to the rental property as well. (Land is not depreciated but does increase your basis in the property a whole.)

Additional Information:

• IRS Pub 527 "Residential Rental Property"
• Where do I enter income and expenses from a rental property?
• What kinds of rental property expenses can I deduct?
• How do I handle capital improvements and depreciation for my rental?