You built an ADU and are renting it out. You are filling out the Sch E for your rental income and expenses. You built the ADU so all of the expenses to build it are added together to create the basis for your new asset. It won't have a land value. You will just be depreciating the asset with the lower of fair market value or what you paid to build it.
It is a rental unit and will be depreciated over 27.5 years. Enter the ADU as an asset. Enter furnishings as an asset to depreciate as well. Appliances are an asset to be entered. They can be part of the basis but you will replace them sooner so I prefer them as a separate asset from the ADU.
Follow these steps:
- Open to federal income
- Select rental
- Rental and Royalty summary
- select the property and Edit
- Summary of your rental shows
- Locate the asset/ depreciation section
- Edit/Update
- $2500 of items or less, select no to get to the house and get it added. You can come back later and say yes.
- Make improvements- select no for now. Again, you can come back later and say yes.
- Select to add an asset
- Enter the house as an asset
- select add asset
- Enter any other assets/ improvements
- done
