Garage conversion to ADU construction cost deduction

[user06shrav]

Hi,

I converted my garage in 2022 to an ADU in CA. I rented from June 2022. I tried using Turbo to take deductions for construction cost, appliances, and permit costs. However, Turbo is showing me ADU construction cost under special depreciation, but showing zero depreciation which I can take in deduction in 2022 taxes. I need help in understanding what is special depreciation? How should I file so that I can use construction cost that will depreciate every year?

Thank you for your help.

[PatriciaV]

If you set up the ADU as a Rental Property and entered the ADU as rental real estate asset, the related costs should be depreciated over 27.5 years. Assets with a useful life over 20 years are not eligible for Special Depreciation. 

Return to the Assets/Depreciation section of your Rental Property and review your entries for the ADU:

1. Rental Real Estate Property
2. Residential Rental Real Estate
3. Cost = total construction costs including labor and permits
4. Land = 0
5. The Asset Summary ("Show Details") should reflect 27.5 years to fully depreciate, with no Section 179 or Special Depreciation.

The appliances you added to the ADU may be eligible for the Safe Harbor Election, which would allow you to deduct the full cost in the first year of use. Or you can take either Section 179 or Special depreciation for this type of asset. TurboTax will provide these options for you under the Assets/Depreciation topic.