How a CPA Wrote Off a $90,000 ADU in Their Backyard
Introduction
In this episode of the Office Hours Podcast by Fujikawa and Associates, hosts Josh and Derek discuss the benefits of building an Accessory Dwelling Unit (ADU) in your backyard. Derek, a CPA, shares his experience of constructing a home office ADU and how it not only provided him with a dedicated workspace but also allowed him to write off the expenses and increase his property value. In this blog post, we will delve into the details of Derek's ADU, the cost of construction, and the potential financial advantages of building an ADU on your property.
Key Takeaways:
1. Maximizing space: Derek chose an 8x15 ADU for his home office needs, highlighting the importance of a comfortable and productive setup.
2. Tax advantages: By paying for the ADU through his business, Derek can write off expenses as business deductions, reducing his taxable income and overall tax liability.
3. Increased property value: The addition of an ADU can significantly impact property value, making it a wise investment for homeowners.
4. Grants and incentives: Derek mentions a $40,000 grant available in California for building an ADU, encouraging listeners to explore similar opportunities in their local areas.
5. Navigating regulations: Derek shares insights into zoning regulations and obtaining permits, emphasizing the importance of consulting professionals for a smooth approval process.
6. Long-term investment: Building an ADU offers long-term financial benefits, both in terms of tax advantages and increased property value.
7. Enhancing workspace and financial portfolio: Building an ADU is a strategic move with multifaceted benefits for optimizing workspace and financial future.
Building the Perfect ADU
Derek explains that he chose the size of his ADU to maximize space without taking up the entire backyard. After considering an 8x10 size, he settled on an 8x15 ADU, which provided him with ample room for his home office needs. The ADU is equipped with a podcast area, a Sony ZV E10 camera, a Shure MV7 microphone, and additional lighting to enhance the video quality. Derek also highlights the importance of having multiple screens for his paperless work and a comfortable setup for productivity.
The Tax Benefits of an ADU
Derek reveals that the entire cost of building the ADU, which amounted to approximately $28,000, was paid for by his business. As a result, he can write off the expenses associated with the ADU, including equipment and furniture, as business deductions. This unique tax advantage allows him to reduce his mortgage or rent expenses by calculating the square footage of the ADU in relation to the total square footage of his property. By utilizing this deduction, Derek effectively reduces his taxable income and saves money on his overall tax liability.
The Impact on Property Value
Derek shares that his house was appraised for a higher value after the construction of the ADU. While he cannot determine the exact amount the ADU contributed to the appraisal, it is evident that the addition of livable space, even without plumbing, can significantly impact property value. Josh suggests that building an ADU is a wise investment, as it not only provides a potential business write-off but also offers the opportunity to generate rental income by housing tenants. Derek mentions a $40,000 grant available in California for building an ADU, although he acknowledges that the application process can be competitive. He encourages listeners to explore similar incentives in their local areas, emphasizing the potential for financial assistance in realizing their ADU projects.
Navigating Zoning and Permits
In this section, Derek delves into the regulatory aspects of building an ADU. He shares his experiences navigating zoning regulations and obtaining the necessary permits for construction. Derek provides valuable insights into understanding local ordinances, setbacks, and other considerations that can affect the feasibility of an ADU project. He emphasizes the importance of consulting with professionals, such as architects and zoning experts, to ensure compliance and a smooth approval process.
Conclusion
In conclusion, Derek's experience in constructing and leveraging an Accessory Dwelling Unit (ADU) as a home office provides a compelling case for homeowners and business professionals alike. The carefully planned ADU not only optimized space for productivity but also demonstrated significant financial advantages. Derek's ability to write off the construction expenses as business deductions, coupled with the potential for reduced mortgage or rent costs, showcases a unique tax benefit. Moreover, the increase in property value post-ADU construction suggests a long-term investment payoff.
The discussion on available grants and incentives, along with insights into navigating zoning and permits, encourages listeners to explore ADU possibilities in their local contexts. The blog post leaves readers with a thought-provoking question: Could an ADU be the key to enhancing both your property and financial future?
As the Office Hours Podcast continues to unravel the intricacies of smart financial decisions, building an ADU emerges as a strategic move with multifaceted benefits for those looking to optimize their workspace and financial portfolio.
