Renting it out

Rent is the reason many ADUs get built. A tenant turns the unit into income, and Washington law no longer lets cities require the owner to live on the property. Renting also makes you a landlord, with registration, tenant law and taxes that come with it. This guide covers the basics for Seattle and Washington; other cities add their own rules, so check yours.

Rental registration and inspections (Seattle)

Seattle requires rental property owners to register their rentals with the city’s Rental Registration and Inspection Ordinance (RRIO) program, and registered properties are inspected at least once every 5–10 years against a checklist of basic safety and maintenance items. A rented ADU is a rental unit and needs to be registered before a tenant moves in.

For short-term rentals the city is explicit: a primary residence rented short-term does not need RRIO registration, but dedicated short-term rental units, including an ADU on the same lot as your home, must be registered with RRIO.

Several other Puget Sound cities run their own registration or business-license requirements for landlords. Your city’s page in ADU rules by city is the place to start.

Landlord-tenant law

Long-term rentals in Washington are governed by the Residential Landlord-Tenant Act (RCW 59.18): written agreements, deposits, repairs, entry, notices and the reasons a tenancy can end. Seattle adds city rules on top, including notice and eviction protections, which the city summarizes on its Renting in Seattle site. Read both before you write a lease; most landlord disputes start with a lease that ignores one of them.

Taxes on rental income

• Federal income tax. Rent is taxable income. You deduct ordinary expenses (repairs, insurance, utilities you pay, a share of property tax and mortgage interest) and depreciate the building. IRS Publication 527 explains how, including how to split costs when the rental is on the same property as your home.
• State. Washington has no personal income tax, so long-term rent is not taxed by the state as income.
• Short stays. Renting for fewer than 30 consecutive days is treated as lodging. The Washington Department of Revenue says owners may need to register and collect retail sales tax and lodging taxes on those stays, and pay business and occupation (B&O) tax.
• Property tax rises once the assessor values the new unit.

Talk to a tax professional before the first tenant moves in; how you track expenses from the start matters.

Long-term vs. short-term rentals

State ADU law lets cities restrict the use of ADUs as short-term rentals, and many do. In Seattle, short-term rental operators need a business license tax certificate and a short-term rental operator license, which costs $75 per unit per year. An operator may run up to two units they own, and one of them must be their primary residence.

The comparison in numbers and trade-offs: Long-term or short-term: renting an ADU in Puget Sound.

Before the first tenant

1. Final inspection passed and the unit has its own address.
2. Rental registration filed (RRIO in Seattle), or your city’s equivalent.
3. A lease that follows RCW 59.18 and your city’s rules.
4. Insurance updated for a rented second dwelling.
5. Utilities: separate meters, or a clear rule in the lease for sharing the bills.
6. A system for income and expense records from day one.