ADU Tax Advantages / Questions

[Justin Norman]

Hello,

I am looking at building a primary residence with one of the large builders in my area. The Utah State Legislator passed a law last year overriding all HOA's allowing Primary Residences to have rentable ADU's. Large builders are now including build options to include basement ADU's. This would significantly help my ability to afford the market from a house hack standpoint, but I want to understand what those tax advantages are renting out my basement as a business rental.

My specific question is around the tax advantages and levers I am allowed to use.

For example: 

1. The home is 4,000 square feet. 2000 SF would be primary residence, 2000 sf would be basement ADU rental.

2. Final construction costs will be ~$1M 

3. Market ADU rates for a 2 bedroom in my area go for ~$1800.

4. My assumptions based off research is I will be able to deduct 1/2 of all allowable expenses based off the ADU square footage (My understanding of that list below)

1/2 Mortgage Interest (Not principle)

1/2 Utilities

1/2 Property Taxes

1/2 Insurance (assuming I don't have separate ADU insurance)

1/2 general house maintenance (depending on the issue and if it's related to the ADU)

1/2 Depreciation (Home value, not land divided by 27.5)

KEY QUESTION: If my mortgage (PITI) is $5400, and all of those ADU deductions equal $3800 monthly, and my ADU income is $1800 monthly, am I allowed to pay the difference in "deductions" from my real estate business income? (I have other rental properties and syndications).

$3800 - 1800 = $2000 per month from other rental properties to help pay for my mortgage? I am trying to maximize what my business can pay for while reducing my personal income tax.

Hopefully that makes sense.

Thank you!