Writing off costs for ADU construction for 2019 taxes if cert of occupancy isn't issued until 2020

[anmarcus]

My wife and I bought a house in 2018 in Oakland that had an unpermitted ~600 sqft basement ADU that we have been not renting out and doing construction on to bring to code slowly over the past year with "help" from the city through the permitting process.  It looks like we're very close to finishing, but the final inspection and certificate of occupancy may not come until early 2020.

I think I understand, per previous posts, that the below list of items are considered appropriate to deduct, but depending on the date of certificate of occupancy, I'm uncertain if we are able to claim these for 2019 or if there's a different way we can deduct them.

The total accrued costs thus far total ~45k and we expect ~15-20k more by the end.

    Land*

          * (we can use 600 sqft? It's the entire basement with 1300 sqft of our home above and a total lot size of 4800 sqft)

    Labor and materials

    Architect's fees

    Building permit charges

    Payments to contractors

    Payments for rental equipment

    Inspection fees

Additionally, I think there's a way we can write off a portion of our mortgage based on the percentage of the home is rentable, but I don't think that counts for this year. How would we calculate it for next year? is this based on the square footage percentage of the ADU to the entire home in relation to the mortgage, or the percentage of the ADU to the lot size?

Thanks!

Andrew

[Critter]

If this is your personal residence  with a basement appt  you cannot deduct anything until the apt is rentable and you have it listed for rent.  Until that happens all you have is improvement costs that add to the basis of the home for depreciation purposes when you start reporting the rental on the Sch E.  

If you have a mortgage on the property it is ALL considered personal until the rental is up and running ... so until then enter it all on the Sch A. 

[Vanessa A]

You can deduct the expenses once you have it available for rent.  If this does not occur until 2020, then you would not be able to deduct the expenses for 2019.  The cost of the improvements you are making are considered capital expenses and will be depreciated over the life of the property once you have the property ready to be rented. 

Land is not depreciable or deductible, so if that is part of $45K, you would need to take that out.  The land is part of your cost basis, so when you sell the property, the cost of the land would be deducted from your profit. 

Yes, the portion of your mortgage interest that is allocated to your rental property is deductible.  You would use the sq. ft of the rental compared to the sq. ft. of the entire home, NOT the entire lot or property.