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toofan1
Level 2

Expensing preliminary cost of ADU for rental that is not going to be built.

I was planning to build an ADU for rental, I spent 30,000 for preliminary cost.  Due to lack of financing, this ADU cannot be built. Can I expense $ 30,000 as investment expense for tax?

4 Replies
NCperson
Level 15

Expensing preliminary cost of ADU for rental that is not going to be built.

see this thread.  At best , appears you are adding to the cost basis of your current property and there is nothing to expense. 

what kind of costs is this $30,000? 

 

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/i-m-going-to-build-an...

 

 

toofan1
Level 2

Expensing preliminary cost of ADU for rental that is not going to be built.

So I will have a higher base  when I sell my house.and less  of captila gain.

toofan1
Level 2

Expensing preliminary cost of ADU for rental that is not going to be built.

Architectual & design plans, permit fee, oak tree analysis,  soil analysis,  initial payment to the contractor. Plus some doors and windows that were preordered.  Also paying gardeners removing  big trees.

NCperson
Level 15

Expensing preliminary cost of ADU for rental that is not going to be built.

@toofan1  improvements are defined by the IRS as: 

 

"Improvements add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of additions and improvements to the basis of your property"

 

Please review page 8: 

 

https://www.irs.gov/pub/irs-pdf/p523.pdf

 

the problem here is that none of the expenses add value to your property or prolong its usefule life or adapt it to new uses.  While you were attempting to adapt it to new uses, it doesn't appear that that the plan was executed so it was not actually adapted to a new use.  

 

Thus all the expenses would appear to be personal expenses, not eligible to be added to the cost basis and not deductible.  that would change later if you executed and built the ADU

 

 

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