Abandonment of Bldg

[Burke]

In 2006, client razed old house being used in a business (rental property @ 39.5 yr depr) and built new office bldg on same lot. Demolition costs were not deducted, which is correct. However, the old bldg had not been fully depreciated. Shouldn't that remaining depreciable basis have been written off under abandonment rules? On 4797? Can this produce a NOL?

[veritas]

remaining basis

Add to basis of land.

[ChEAr$]

Is seems reasonable

In 2006, client razed old house being used in a business (rental property @ 39.5 yr depr) and built new office bldg on same lot. Demolition costs were not deducted, which is correct. However, the old bldg had not been fully depreciated. Shouldn't that remaining depreciable basis have been written off under abandonment rules? On 4797? Can this produce a NOL?

(Yes, I know; a dangerous assumption when talking taxes) that.......
if demolition costs can't be currently deductible (instead added to land), the book value
of the building must also be added.

[Burke]

Okay. So it apparently comes under Sect 280(b) which states no deduction for "any loss sustained on account of such demolition..." and cannot be added the depreciable basis of the new bldg. When you read the rules for abandonments which say "loss from abandonment of business or investment property is deductible as an ordinary loss, even if the property is a capital asset," it seems to contradict 280(b). I guess it is the interpretation of "abandonment" which states "you abandon property when you voluntarily and permanently give up possession and use with the intention of ending your ownership but without passing it on to anyone else"

[ChEAr$]

Back to basics for a moment.

Okay. So it apparently comes under Sect 280(b) which states no deduction for "any loss sustained on account of such demolition..." and cannot be added the depreciable basis of the new bldg. When you read the rules for abandonments which say "loss from abandonment of business or investment property is deductible as an ordinary loss, even if the property is a capital asset," it seems to contradict 280(b). I guess it is the interpretation of "abandonment" which states "you abandon property when you voluntarily and permanently give up possession and use with the intention of ending your ownership but without passing it on to anyone else"

"Abandonment" means leaving something as if; quitting the premises; riding out of Dodge
City and not looking back.

Your client didn't abandon a building. he tore it down.

[Burke]

That's the way I am looking at it too. So original return and capitalization was handled correctly. I started second-guessing myself when I ran across the abandonment rules. Sometimes you can over-analyze things. However doesn't seem fair that someone could just take off and get a big loss on his tax return, whereby the guy who stays and tries to improve his business gets none of that until he eventually sells.