ADU added to a rental Cost Segregation: Basis review

The issue this scenario creates

An accessory unit may share services with an existing rental. Reconcile new construction and allocated shared costs without counting the same system in both buildings.

The main objective is to separate new-unit construction from shared building and site systems. A useful analysis makes the ownership and timeline understandable before anyone applies a reclassification estimate. Do not replace missing history with an assumed new purchase or a generic depreciation percentage.

Basis review approach

Basis is a tax starting point, not necessarily current value, borrowed funds, insurance coverage, or the number shown in a listing. The acquisition or transfer history can determine which records are relevant. Give the preparer enough information to establish and adjust the cost pool, then give the provider a reconciliation that can be followed back to those records.

Document the difference between the opening amount and the final study basis. Show land, separately recorded assets, credits, additions, exclusions, and relevant prior treatment. Keep estimates identified. A component analysis cannot repair an unsupported basis simply by allocating the total among many short-lived rows.

Scenario-specific evidence

Start with ADU plans, permits, contractor costs, utility routes, and completion records. Connect each record to the event it establishes. Explain conflicts and missing years rather than presenting a single unexplained number.

Hypothetical example

A backyard unit connects to the main house's water and electrical service.

The review should guard against duplicating shared utility costs across two studies. Resolve that concern using the specific records above. The example illustrates a process question, not an available deduction or an actual completed client study.

Question to resolve before closing this task

Can the provider and preparer explain each adjustment from the supported starting basis to the analyzed amount?

Write down the response and retain the supporting record. Assign an owner to any remaining issue and confirm whether it changes the study scope, projected benefit, delivery timeline, or implementation cost. A property report and a usable deduction are separate steps in the workflow.

Practical completion checklist

• Identify the actual property owner and reporting taxpayer.
• Preserve original records and explain missing information.
• Keep existing assets separate from later additions and replacements.
• Confirm the provider and return preparer have accepted the same basis reconciliation.
• Retain the final report and the schedules actually implemented.