Deconstruction Tax Implications

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Rolyatroba
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Joined: Mon Apr 22, 2013 1:14 pm

Deconstruction Tax Implications

Post by Rolyatroba » Fri Dec 04, 2015 2:11 am

I am in the process of subdividing a lot and building 2 new homes. It was brought to my attention that deconstruction could more than pay for itself with the tax deduction. But this is $30k more expensive than demoing. If I model this with tax software as a donation it does more than pay for it, but my builder just told me that for a spec home that I immediately sell after construction, the deconstruction benefit only changes the basis on the sale and won't be as beneficial as a donation deduction.

I do plan to have a CPA do the taxes for this project next year, but don't have a CPA now (I normally do taxes on my own) and don't have the time to find one before the project starts.

So, any expert or pseudo-expert advice on whether I should deconstruct or demolish?

Topic Author
Rolyatroba
Posts: 223
Joined: Mon Apr 22, 2013 1:14 pm

Re: Deconstruction Tax Implications

Post by Rolyatroba » Fri Dec 04, 2015 10:43 am

Bump. Sorry--wrote this late last night, so alas it had fallen unseen. :)

JW-Retired
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Re: Deconstruction Tax Implications

Post by JW-Retired » Fri Dec 04, 2015 1:05 pm

deconstruct or demolish? ............... Hopefully someone knows but you might be expecting too much from us.
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NOVACPA
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Re: Deconstruction Tax Implications

Post by NOVACPA » Fri Dec 04, 2015 3:25 pm

Assuming you itemize your deduction and can benefit from the donation then you would come out ahead.

When you deconstruct the builder will take the building apart by hand and salvage materials. These building materials will be evaluated by a third party appraiser. An independent value will be determined for you.

These independently valued, salvaged building materials will be donated to a 501(c)(3) that will use the materials for their projects. You will take a charitable deduction for the value of the donation.

Since this costs $30,000 more than the wrecking ball and bulldozer method, you need the materials to be valued at greater than $120,000 (assume 25% marginal rate). Ifor the appraisal is not allocated in the $30,000 then it will need to be more than $120,000.

Your basis in the home will the allocated cost of the land and the cost of construction. Thr two items would be separate unless I'm misunderstanding your explanation.

Talk to a CPA, that specializes in tax and has real estate experience.

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