Belated thanks, although like I said two tax accountants here disagree, each consulted independently. While the cost of the demolition work itself goes to the basis and is not deductible, the partial disposition loss of the value of the structure can be deducted as a miscellaneous expense similar to a casualty loss. But as it turned out, we elected not to do this given that we were taking a big loss already and it would have no effect on tax liability, and carryover would also not benefit our situation.
