Does ADU increase Property Tax?

The term ADU is sometimes supplanted by “grandma’s house,” “extra space in the garage,” or “a small house in a vacant space on the property.” In the end, regardless of the term used, it is the same thing.

To build an ADU is to have a living space separate from the main house and a functional kitchen and bathroom. According to the laws, this construction adds value to the property; therefore, taxes are usually increased.


How do ADUs increase property taxes?

Any additional construction on the home represents an increase in taxes because the property’s value will increase. The structure of an ADU is an adequate alternative to having additional space, and it is possible to generate extra income.

However, an ADU will not cause the home to be reassessed to determine tax value because it will be independently assessed as an addition to the current property.

It will not trigger proposition 13 upon constructing an ADU, and the home will not need to be reassessed. What will be done is the recognized “combined assessment.” For example, if the construction is valued at $140,000, the new tax bill will be approximate 2%,

This percentage translates to $1,400 per year on top of the main home. According to the calculations, the taxes will increase by about $120 per month. Ultimately, the impact on real estate taxes will not be as significant as some people claimed it would be.

Tax Benefits of ADUs

Now that it is understood that ADUs add tax on top of the property tax you currently have, it is necessary to mention the tax benefits it can provide.

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For starters, it is possible to build it by rending it out and recovering both the cost of construction and the additional taxes. The term to recover the taxes will be between one or two months. In other words, you will not have to worry about that.

From the first month in which the ADU appears as available, you will be able to begin to depreciate the cost in taxes. On the other hand, in some states and cities, there are specific tax incentives to design an ADU in your home due to the shortage of real estate in some areas.

In addition, you will be able to take advantage of tax deductions in different circumstances, such as repairs, mortgages, and rental advertising. Knowing the laws and regulations in the city and state tax codes where you live is advisable.

Notification for the validity of the property

From the moment the construction of a new structure begins, you must notify the county assessor. When the construction is finished, the professional will be responsible for making the new appraisal to determine the additional taxes.

It is not advisable to hide these constructions from the state because you risk facing unnecessary fines. In the end, the taxes for ADUs are lower compared to some additional installations made on the home.