If you are building an Accessory Dwelling Unit (ADU unit) on your property or have one built beforehand, you may want to know if it will have any impact on your property taxes and resale value. Is there an ADU property tax?
ADUs offer a myriad of benefits, including additional living spaces, the property you can put up for rent and versatile working areas. Apart from this, they do tend to increase your property value and offer some tax benefits. Let’s discuss it!
Selling ADUs: Can You Sell ADU Separately?
ADU homes aren’t just a few extra inches you add to your home; they act as an entirety of a home in themselves, with all the necessary amenities you will need. However, you can’t sell your ADU separately. If you are planning on selling your property that happens to have an ADU, the ADU house will be sold with it. And when you are making a sale, no separate amount is listed for the ADU. So, how is the value of an ADU unit assessed?
ADUs and Resale Value
Does ADU increase home value? How much value does an ADU add to a property?
The value of ADUs is typically estimated by comparing your property (including the house and ADU) to similar-sized houses (with or without ADUs). The houses may have a similar build, condition or location. This way, the value of an ADU addition is estimated by appraisers before the sale.
Of course, the addition of an ADU can add a considerable amount of value to your home. In fact, some homeowners capitalize on this by adding ADUs to their property. It is one of the top ADU benefits.
The exact value an ADU unit can add to your property depends on several factors, including the following:
- The size of the ADU: The larger your ADU is, the more living space it will offer and, hence, the more value you can get out of it.
- The type of ADU: There are several types of ADUs: detached, attached, basement conversions, garage conversions, etc. You will get the most return out of a detached ADU since they offer the greatest property value.
- Your property’s location: An ADU in Beverly Hills and an ADU in Compton will never cost the same, even if you have used all the same materials and sized it the same way. The nicer neighborhoods your property lies in, the more property value you can gain from it.
On average, an ADU can increase the value of your home by anywhere from 10% to 20%.
ADUs and Property Taxes
Does adding an ADU increase property taxes? How much will the ADU property tax be?
Of course, like property resale value, an ADU unit will further raise your property tax bill. But you don’t have to worry about undertaking an entire re-assessment for your entire home. Your property taxes will only rise based on the additional value of your ADU.
Most properties are taxed at the rate of 1%. So, if your ADU is assessed to hold a value of $150,000, you will need to pay an additional $1500 in property taxes every year.
Besides property taxes, note that if you put your ADU for rent for any period, you will have to report the ADU rental income you earned from the unit in your income taxes. To understand just how much this may cost you, you can reach out to a qualified accountant.