Obsolete building

[natiro]

A contractor-developer bought property with an old house on it in 2001. The property was subdivided and the contractor-developer built 3 houses on one portion of the land. which were completed and sold in 2006. Since 2001, the house has been rented at fair rental.

In 2007, the contractor tore the house down in order to prepare the land for a condo development.

Can the remaining cost basis of the building be written off in 2007? Or is there some reason it has to be capitalized into the property cost for the condo project?

What about the costs of tearing the property down? If the remaining cost of the rental house can be written off in 2007, can the cost of tear the property down be included or would those costs have to be capitalized into the cost of the condo?

If you can provide any cites for your answers, I'd appreciate it. But even without, I'm interested in any discussion.

Many thanks.

[natiro]

Never mind

Never mind. I just found the answer.

Demolition costs, and the remaining basis, must be capitalized into the cost of the land.

I knew, after researching for quite some time, that if I posted the question, I'd probably find the answer.

Thanks anyway.

[Gene V]

You must of found that in TTB 8-6


Demolition expenses. Amounts paid to demolish a structure are
not deductible as a current expense. They must be added to the
cost basis of the land where the demolished structure was located.
Any loss for the remaining undepreciated basis of the demolished
structure is not recognized until the property is disposed of.

[natiro]

Demolition

Gene - actually I found it directly in the Code and Regs. I would have found it in The TaxBook when I first looked but I didn't think of the the word "demolition" and was unsuccessful in finding anything. Once I came up with the right word, I found the answer every where I looked!

Thanks for your response.

[JohnH]

And then the next step - the client

This is always really interesting to explain to the client, especially if they understand a little about depreciation, the difference between land & depreciable assets. etc.

"Yes, I know you bought land AND a building which up until now you could depreciate, and I understand that you spent additional money to tear the building down. But now you can't write off either the building or the demoltion expenses - they have to be added to the land value and forgotten about until you sell. And yes, I'm going to bill you for the time explaining this to you for the 11th time."