Is ADU Tax Deductible

Many Los Angeles homeowners have discovered the benefits of adding an Accessory Dwelling Unit (ADU) to their residential lots. However, not everyone has tapped into the full advantages of owning one of these miniature living units. Discover how LA property owners can get tax deductions for their ADUs.

Related: How to Make a Side Income from ADU 

ADUs are secondary housing units that are built on single-family residential lots. Though only one ADU is allowed per lot, some homeowners also choose to add a Junior ADU to their Los Angeles property.

ADUs are fully self-sufficient living spaces that can be rented out for additional monthly income. Many LA ADU owners profit enormously off of this living space.

Los Angeles ADUs can be attached to the main property as long as they have a separate entrance. However, many property owners choose to construct a standalone ADU or convert attic or garage space into this highly beneficial miniature living unit. Teaming up with a professional contractor will ensure that all LA ADU codes are fully met.

Related: Junior ADU Guide

ADUs & Los Angeles Property Tax

Many people build ADUs to have passive monthly rental income, while others wish to house loved ones or just have extra space. However, property ADU property tax is often something homeowners first consider. Though building an ADU will lead to a property tax reassessment, it will trigger a blended assessment. This means that the ADU will be assessed separately for Los Angeles property owners. The additional ADU tax will then be added to the property tax bill, which is typically 1% of the property’s market value.

Since it is a blended assessment, ADU’s often cause only a very slight tax bill increase. Fortunately, any increase can be quickly paid off. Since Los Angeles is a very popular living and vacation destination, ADU rentals are in high demand. Therefore, property owners can easily make up for their ADU property tax increase with monthly rentals. Over time, this will allow for the ADU project to pay for itself.

Maximizing ADU Tax Deductions

One way to maximize tax deductions for ADUs in LA is to create an LLC around the rental. This allows for any expenses incurred for the construction to be tax-deductible. Creating an LLC also significantly reduces risks for the homeowner. Having an LLC limits personal responsibility for damages incurred by renters. Fortunately, LLCs are also quite easy to both create and manage.

Having an LLC for your ADU is a smart move. Overall, homeowners have limited liability, protection from insurance failure, increased tax write-offs, and decreased regulations. Unlike other business types, an LLC offers taxation at an individual level rather than double taxation. An LLC protects homeowners from any unforeseeable issues that could happen with renters.

Related: Types of Los Angeles ADU

Adding an ADU to your LA property is an advantageous step. When it comes time to sell your property, ADUs almost always raise property value. This adds a big chunk of money back to homeowners’ wallets.

Not only can renting out your ADU cause the property tax to be paid off and fund the initial project costs but having an ADU is a strong investment for future selling.

ADUs are dually advantageous. They are a source of passive monthly income for many successful years and they create valuable equity immediately. Plus, homeowners can decide at any point to stop renting their ADU out. This leaves them with a fully furnished and self-sufficient space that can be enjoyed for a variety of purposes.

Related: ADU Frequently Asked Questions

Build Your Los Angeles ADU Today!

In addition to renting out an LA ADU, many homeowners turn the unit into office space. This allows for the benefits of working from home with added privacy and silence. Others use the space as a guest room to house family and friends, especially if there is someone ill in the family. ADU spaces can be used as game rooms, playrooms for children, extra family space, art studios, fitness studios, or anything the homeowners desire.

Why Us?

At California Foundation Works, we’re your one-stop shop for construction needs in the greater Los Angeles area. Our team of contractors collaborates closely with clients from the initial questions to securing permits to putting the final touches on their homes. We strive to keep homeowners safe while also renovating, retrofitting, and repairing homes and yards they will enjoy for many successful decades to come. Call today to discuss your LA property needs!

Do you have an ADU in the greater LA area?

Are you looking for ways to save money with your Los Angeles ADU?