Question about demolition of a detached accessory dwelling unit

[Chris Burke]

Hi BiggerPockets! I know I'm going to need excellent professional help planning this from start to finish, but thought I'd start here to brainstorm.

My partner and I just bought a commercially zoned property in Nashville, TN with intention to use it as a short term rental. There's a main house and a detached accessory dwelling unit. We had a commercial appraisal done for our mortgage, and the final valuation was calculated using a fixed $255/sq ft applied equally to the area of the main house (1483*255=$378,165) and the DADU (727*255=$185,385), plus a small amount for a shed ($7200), for a rounded final assessed value of $570,000. The value of the land wasn't included in the assessment, but the city currently has it at $22,500.

Here's the heart of our question. >> The ADU will eventually require either significant repair or demolition, and I'm looking for the most tax efficient way to proceed. Our intention upon purchase was to use both the main house and the ADU for business purposes. They are one parcel, but have two addresses (A and B). The city would allow us to get two separate STR permits for the main house and ADU, or we could place a long term tenant in the ADU, or we could explore another business use for the ADU.

The simplest thing for us would be to demolish the ADU now. Of course, I'd like to maintain the ability to continue to depreciate it.

I found reference to using a general asset account to maintain depreciation after demolition, but that seems to require keeping the asset for at least a year (https://bit.ly/37Q9D0I). If we delayed demolition, and found a legitimate business use for the ADU over the next year (storage? Peerspace?), do you think this GAA strategy is viable?

If we demolish now, and we're unable to continue to depreciate it, is there a strategy to use a cost segregation study to accurately reflect the value of this derelict ADU, and assign a greater percentage of the purchase price as a whole towards the main house? I'm concerned that our recent appraisal applied the same $/sqft to the main house and ADU (although I was grateful it appraised over contract!), and how that might impact what value we capitalize and assign to the land after demolition.

I'm told by our cost segregation professional that if we do a cost seg study before demolishing the building, then we can continue to depreciate it...which seems to contradict what I've found elsewhere.

I don't have a CPA currently, because my last one has gone dark and is not returning my calls or messages. It's several weeks before I can get an appointment with a new CPA, and we're needing to make a decision on this soon.

Thoughts? Concerns? Am I missing any other creative options?

Thank you.