So you'll just show the old property as completely converted to personal use effective the date the tenant moved out. I expect you did that on your 2018 tax return.
For your 2019 tax return and on, that property should not even be shown on SCH E at all.
For your 2021 tax return you'll report the sale in the Investments section.
Your cost basis on the new structure is figured as follows:
For starters, the cost basis of the land usually doesn't change. But it does/can change if there's any depreciation not yet taken.
Add any remaining depreciation not yet taken to the cost of the land. As I understand it, the property was fully depreciated. If so, your cost of land will remain unchanged.
Add your demolition costs to the cost of the new structure, if not already included in the invoicing from the construction contractor.
Since the property was sold within one year after work was completed, I do not know for a fact if the sale results in a short term gain which is taxed at a higher rate, or a long term gain because you owned "the property" so to speak, for more than a year. If I were to guess, (I haven't looked at the IRS pubs on this) I would expect any Section 1250 gain to be treated short term.
