Abandonment Property & Demolition Tax Strategies

****Don’t Leave a TON of MONEY In Your Building ****

Before you rip out, tear down or plow under anything in your building, you should see if and Abandonment Study will provide you with a substantial cash flow and terrific tax deductions for the year you are doing the work.

MAJOR Benefits of an Abandonment Study:

Provides quicker depreciation deductions (39 years to 1 year)
Identify components of a building prior to demolition and/or rehabilitation which can be reclassified as personal property versus real property
Can generate large depreciation deductions for the owner of investment or owner-occupied real estate.
Provides the advantage of writing off any “structural” components that are removed THE YEAR YOU REMOVE THEM!!
Benefits and tax deductions are even greater than those of a Cost Segregation Study
The value of disposed “structural” components is generally the highest cost spent in any given suite.
Reduces Basis of your building
An Abandonment Study fully documents the building components and thus allows you to claim these losses and significantly increase tax savings.
Increase cash flow and ROI of your building
For every $100,000 of demolished property that is segregated and written off in the year of demolition, an NPV benefit of about $30,000 is obtained

For example, if a property owner has a $5-million property that they are going to demolish:

The total cost would typically get applied to the land with the property owner having no ability to depreciate or recoup the $5-million investment A Abandonment Study, prior to the demolition, identifies $1,500,000 of personal property.

The property owner will now be able to write off the $1,500,000 as abandoned personal property in that year on their taxes!

Get a Free Feasibility Study to Find Out Your Deductions, BEFORE You Tear It Out!

Abandonment and Cost Segregation Studies can be highly effective tools when used correctly with renovations, retro-fits and demolition projects. In addition to accelerating depreciation on the existing structure and eventually the new improvements, an Abandonment Study can be used to identify the value of materials that are being retired (thrown away), so that the remaining balance can be fully depreciated in the current tax year and taken off the basis of your building.

Although the tax code does not allow an owner to deduct expenses for “demolition” of a building or any loss sustained due to the demolition, “renovations” are be subject to a different set of rules for the tax deductions.

Additionally, the IRS does not allow a taxpayer to write-off arbitrary amounts based on cost per square foot, or other internally developed methods. Therefore, if you are planning to renovate an existing property and have not had a detailed Abandonment or Cost Segregation Study performed you may be overlooking significant tax benefits. It is important that the study be completed before renovations begin in order to properly identify and document what was at the property. It is not acceptable to go in after the fact and analyze a pile of rubble. The IRS takes the position that a pile of rubble is worth nothing. Therefore, once the old property is removed, it has a value of zero.

Guidelines for Renovation:

1. If 75% of the external walls are retained; and
2. If 75% of the existing internal structural framework of the building is retained.

If you meet both of these requirements, then all expenses are deductible as a renovation and you can take full advantage

REMEMBER, thorough documentation and timing is the key to getting these deductions

Free Abandoned Property Feasibility Study