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"Place in Service" Date for ADU
Hi Tax Pro's, I'm a 'buy and hold' investor & developer with several rental properties, and I'm also considered RE Professional for tax purposes.
I purchased a 4BR/2Bth SFR rental property in CA in March 2020. This SFR unit (main house) was 'placed in service' and rented in April 2020. With the relaxation of ADU ("Granny Flat") regulations in CA, I decided to convert the existing separate garage (no rented) to an ADU while the main house is rented. The design/permit were done in 2020, and the new construction (framing, drywall, kitchen, etc.) started in the 4th Qtr. of 2020, and to be complete in 1st Qtr. of 2021. The ADU to be rented in 2021.
The ADU construction costs are segregated (Cost Segregation) to 5,15 and 27.5 yrs life. There are classified 5&15 yrs costs that fall under 100% bonus Depreciation in both 2020 and 2021. Based on the IRS, 100% bonus depreciation is granted for the 1st year that a property is 'placed in service'.
So, what will be considered the 1st year for the ADU? Does the IRS sees the ADU as a separate unit or part of the main house/main property? Is the "1st year" considered 2020 when the entire property (including the existing garage) was purchased and 'Placed in Service', OR 2021 when the conversion of the garage to ADU is complete and rented?
Sorry for the long description. Your response would be highly appreciated.