Ok ... you really need to talk to a local tax pro to get all your questions answered ... but in general :
Once the property is put into service as a rental the income and expenses are reported on the Sch E and the cost basis is depreciated if the rental use spans over 2 or more tax years. It is a rental from the first day you advertise it for rent and it is rentable until you take it out of service.
Once it is no longer a rental then it is taken out of service and the Sch E is closed.
Then the cost of the tear down is added to the cost basis of the land and the cost of the newly constructed home becomes the cost basis of the personal residence.
