I have a rental property that took 2 years to get a contractor to tear down. It cost $9000. How do I take this expense off my taxes?
The $9000 it cost to tear down the property adds to your basis in the property. This is not a deductible expense for taxes.
If you rebuild a house and use it as rental property this amount is added to the cost of the property and depreciated over 27.5 years.
If you build a house that you use for your residence, again you add the amount to your basis in the property and it is deducted when you sell the property.
Where land is purchased with an incidental building that is intended for immediate demolition, or demolition following a short rental period, the costs of demolition (less any salvage value) and the part of the purchase price allocated to the building become part of the cost of the non-depreciable land. The demolition costs are thus not currently deductible. This is because the building will likely not be considered depreciable property if it is used to earn income for only a short time prior to its demolition. The demolition may nonetheless result in an immediate capital loss to the taxpayer if the proceeds of disposition (nil) are less than the building’s capital cost.
Thus, although an immediate write-off of the demolition costs is not permitted in these circumstances, the costs can reduce any capital gain that may be realized on a future sale of the land.
Alternatively, where a building is not demolished immediately, the facts of each case will determine whether the building is depreciable property. If the building is depreciable property, then the rules described above regarding terminal loss restriction would apply.