Land Sale after demolition of building

[jmb]

Client owned rental duplex for many years. In 2011, he demolished the building and in 2012 sold the land the duplex had been on. No basis left in building. Do we have section 1250 recapture when the land is sold, since the building was already gone prior to the sale of the land?

[ChEAr$]

Client owned rental duplex for many years. In 2011, he demolished the building and in 2012 sold the land the duplex had been on. No basis left in building. Do we have section 1250 recapture when the land is sold, since the building was already gone prior to the sale of the land?

When the building was demolished, no expense, if any, should have been booked for that. Rather the cost of demolition should have been debited (added to) the cost of the land.

[jmb]

Client owned rental duplex for many years. In 2011, he demolished the building and in 2012 sold the land the duplex had been on. No basis left in building. Do we have section 1250 recapture when the land is sold, since the building was already gone prior to the sale of the land?

The demolition costs were added to the basis of the land. My question is whether or not we have section 1250 recapture for the depreciation taken on the building prior to demolition.

[ChEAr$]

The demolition costs were added to the basis of the land. My question is whether or not we have section 1250 recapture for the depreciation taken on the building prior to demolition.

how would you figure such if so? I can't think of any way. After all, purchaser paid only for the land.

[Roland Slugg]

There is no such thing as "section 1250 recapture." You are referring, I'm sure, to "Unrecaptured §1250 Gain."

That category of income only arises when real property, on which depreciation was taken, is sold at a gain. Since your client sold only land, there can be no Unrecaptured §1250 Gain. Even if there was undepreciated basis in the building, upon demolition, and it was added to the basis of the land as required by Code §280B(2), there would still be no Unrecaptured §1250 Gain, because the entire price paid for the real property was for the land. The building was gone, so no part of the selling price could conceivably be allocated to it.

Although the OP didn't say, the demolition costs incurred when the building was razed in 2011 should have been capitalized and added to the basis of the land. Code §280B(1).

[jmb]

There is no such thing as "section 1250 recapture." You are referring, I'm sure, to "Unrecaptured §1250 Gain."

That category of income only arises when real property, on which depreciation was taken, is sold at a gain. Since your client sold only land, there can be no Unrecaptured §1250 Gain. Even if there was undepreciated basis in the building, upon demolition, and it was added to the basis of the land as required by Code §280B(2), there would still be no Unrecaptured §1250 Gain, because the entire price paid for the real property was for the land. The building was gone, so no part of the selling price could conceivably be allocated to it.

Although the OP didn't say, the demolition costs incurred when the building was razed in 2011 should have been capitalized and added to the basis of the land. Code §280B(1).

That was my opinion also. The demolition costs were capitalized and added to the basis of the land. Thank you for your opinion.