Does the time and effort spent behind build ADU count towards REP status?

[Nick Am]

Hi All, 

I have 2 multifamily rental units that I entirely self-manage. For 2025 I will be taking a leave from my fulltime W2 work start 1st July for rest of the year. I want to take this opportunity by qualifying for REP status.

I have also been meaning to build 2 units in my backyard and put them on rent. The area where i live, land is very expensive. So building ADU some what makes financial sense.

I have following questions:

1. Does the time and effort behind designing, permitting, and building the ADU count towards the REP status?

2. I will be renting ADU fulltime and will not use for personal usage. Can IRS still see it as a part of primary dwelling unit and thus, consider it not eligible towards achieving REP status?

3. Will the renting of ADU rise to the level of trade or business?

Kindly share your thoughts and suggestions. 

Regards, 

Nick