How do I deduct the expense of demolition of a building on a rental property to improve it to put it on market later on

[ckturbo2021]

I was ordered by the city to have an old building demolished, can I deduct this expense ?

[Mike9241 · Accepted solution]

In the case of the demolition of any structure, no deduction is allowed to the owner or lessee of the structure for any amount expended for the demolition or any loss sustained as a result of the demolition. Instead, such amounts are added to the cost of the land on which the structure was located per I.R.C. § 280B. Thus, the tax life of the adjusted basis of the demolished building goes on, now as in nondepreciable land. Other than a historical building or hazmat removal, the only other rules that might help are those of the “Partial Demolition”safe harbor rules in Rev. Proc. 95-27, 1995-1 C.B. 704. The safe harbor rules require:

Seventy-five percent or more of the existing external walls of the building remain in place as internal or external walls; and
Seventy-five percent or more of the existing internal structural framework of the building remains in place.