Deductibility of home structure?

Options
pete
pete Member Newcomer

Considering allowing local fire department to use my home for training before tearing it down and rebuilding.

Can I deduct the structure value less costs saved for demolition?

Tagged:

Comments

  • MatthewD
    MatthewD FreeTaxUSA Team
    edited October 2023
    Options

    Hi Pete, 

    There are no deductions for allowing the fire department to use your land for firefighting practice. It seems like there would since you are essentially donating your home to some nonprofit organization. But it doesn’t work that way. Also, you don't lose the value of the home. With the house burned and tore down, your new basis (or cost) in the land is the original basis (of the home and land) plus any improvements.  

    To help you understand my answer, let me provide some background information on how a home is treated for tax purposes. You have two components of a home: the land or dirt the home is on and then the improvements like the home or landscaping to the land.  

    The land can never be depreciated or reduced in value; hence it is referred to as Real Property. Certain improvements to the land are capitalized into the land and increase the basis. Other improvements to the property, like the structure of the home, are capitalized into the home and can be depreciated over time, if used in an income producing activity. 

    The IRS refers to sales of items as “conversions”. In other words, you convert one thing to another. In a sale, you convert something into cash. In the case of a fire or flood or something out of your control, it is called an involuntary conversion.  

    In the case of a conversion of the home, by demolition, you capitalize the cost of the home, plus any demolition costs into the value of the land. The same applies if a home is condemned. The home has to be torn down and the original basis is all placed into the land. 

    In your case, where you are intentionally demolishing the home, your new adjusted basis in the land is the original basis plus any major improvements. Since the fire department is doing it for free, you don’t increase the basis by any demolition costs. Then when you build a new home, your adjusted basis, is the basis of the land and the cost of construction. In the end you don’t lose the value of the old torn down home.