Tax Questions for Garage Conversion (ADU) for Existing Rental - California

[K James]

I'm working on a development project for my existing triplex rental property. I'm converting the garages into two new rental units and adding a bathroom to one of the existing units. In 2023 I spent approximately $29k towards consultants for designing the plans and permit processing. We are still working through the City to get the permits so we can start work. I expect/hope to be able to pull the permits, complete construction, and put the new units into service (rent them out) some time later in 2024.

When and how do we account for my expenses on my taxes? Will all my associated costs (i.e. design & construction) be tax deductible? Do we include them in the year they were spent (starting in 2023) or do we need to wait for the year the units are in service (actually rented out)? Will all the costs be depreciated and if so on what schedule or will some of the costs go on my Schedule E? If depreciated, how is that done for soft costs (design, engineering, and permitting)?

Thanks for any advice!