Renovating my guest house for rental income

[Catherine McHale]

Hello,

I recently purchased a single family home with a separate stand alone building, complete with chimney and fireplace, that will make a great studio rental (appx. 400 SF). I would like to renovate the building (there is currently no plumbing), install a bathroom/kitchenette, and prepare the space for rental; I estimate that I will spend about $15K but should receive about $1,000-$1,200/month in rent.

2 Questions:

1: The guest house structure was built in the 30's, as was the home, but the gues thouse was not permitted. From my preliminary research, I believe the construction type (slab on grade with concrete block walls) should be permittable, and the set-backs also seem to comply. Would it be possible to permit the structure after the fact, so any work I do could be permitted?

2: If I decide to rent out both the main house and this guest house within the calendar year that I perform this work, effectively converting the property to a rental property, can I deduct all this work as rental property upgrades? There is landscaping and other exterior work that I want to perform as well.

Thanks for any information that anyone can offer!