Investors & landlords

In TurboTax, first you enter the information (rental income, expenses) concerning the rental BEFORE the demo.

Select that you stopped using it and the date it was destroyed in the rental profile section. 

Return to the rental property and select Edit 

Scroll down to "Sale of Property/Depreciation and select Start or Update

Select "Yes" to go to asset summary

Select that you disposed of the property (sold, retired, destroyed, gave away) and enter the date it was destroyed.

The next screen will ask about prior deprecation. If you have been using TurboTax all along, the program will generate the amount. If this number is incorrect, you will need to edit it. You might need to write down this number for a future step.

On the next screen, be sure to select "YES" for "Special Handling Required" 

Click DONE and move to the Personal "Deductions & Credits" section

Scroll down or find "Casualties and Thefts" under "Other Deductions and Credits"

Enter the description and date the rental was destroyed

PLEASE BE SURE TO SELECT "INCOME-PRODUCING PROERTY"

Continue

Select YES for passive activity

On the Business Property - Information screen, you need to enter the "adjusted for deprecation Cost Basis' 

This means the price you paid for the building PLUS improvements MINUS depreciation claimed (or should have been claimed)  

Do not include the price of the land since you are keeping that. 

If the rental was used for more than 27.5 years, and there were no improvements made, the adjusted basis for depreciation would be zero and you would have a capital gain if you received an insurance payout. 

If you had other assets relating to the rental that were listed separately and depreciated separately, you need to clean those assets off the book as well. If you did get an insurance reimbursement, allocate that amount of the insurance to the remaining value of each asset so they zero out. 

If there was no insurance or other compensation, and there was no residual value to any of those assets, you can:

Claim a casualty loss for each asset OR 

Add the "adjusted basis" of the assets to the "adjusted basis" of the building and report as one event. This means  you will also need to subtract the deprecation taken on each asset to get its "adjusted for deprecation" basis for each asset. 

The resulting gain or loss will be reported on you 1040.

Gain will be Capital Gain on Schedule D

Loss with be ordinary loss on Schedule 1

Any costs you paid to clean-up the site is added to the lot. So if the land was worth 15,000 and you paid 3,000 to clean the building site, the lot would now have a basis of 18,000 which is what you might use when you sell it. 

@cestmoijay