Strategy: Depreciate or demolish?

Question

Hello everyone.

I’m purchasing (first time CRE) some property in Texas that has been rezoned from residential to commercial. It still has an older home and very large storage shed / hanger in the back. My initial plan was to demo both structures ASAP, but now wondering if keeping the structures for a bit has “value” from a depreciation / tax perspective? I will eventually need to demo them to prepare for a new office/mixed-use development, but perhaps I wait until 2026? Current assessed/taxable value of property for 2025 is around $550,000 total ($400k land + $150k improvements).

Ashish Acharya · Answer

@Bryan Johns Yes, holding off on demolition could create meaningful short-term tax advantages if you depreciate the existing structures before tearing them down. Since the improvements (home and shed) are valued at $150,000, you could start depreciating them now, generating deductions that offset income—especially useful in a high-tax year.

Here’s how it typically works:

• If you place the property in service (e.g., rent it out, use it temporarily), you can begin depreciation on the structure.
• Later, when you demolish the buildings, you would write off the remaining undepreciated basis as a loss—but only if the property was used in a business or income-producing activity before demo.
• If you demo right away without placing it in service, you lose depreciation benefits and must capitalize the demolition costs into the basis of the new development.

So, waiting until 2026 to demolish may allow you to claim depreciation in 2025 and potentially deduct the remaining basis upon demo. This could be especially valuable if you expect meaningful income in 2025.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Bryan Johns · Answer

I actually am now planning to keep the building and put it into service as a storage rental (for another business of mine). I wouldn't not plan to demolish it.

Henry Clark · Answer

OP. Forget everything but the land since you plan to demolish it. You want to find cost comparisons on the land.   Preferably that show it is lower.  I would also have someone

Look at the land.  In this post it helps if you add some

Pictures.  Means more ideas.

Henry Clark · Answer

OP.  Maybe I’ll write a post so good some day and people think I’m AI.

Your objective is to get the land value as low as possible.  Your $400k above you want lower.  Pictures help.  But try to cut the land up into as many cost types as possible.   This may then allow you to write off some of the “Land” costs.   Driveway

Culvert or entrance

Fence

Landscape

Storm ponds or sewers.

Water, sewer, fire hydrants, etc

Signage

Security system

Lighting

Permitting

Etc etc.

You want to squeeze that $400k of land value.  So you can write it off.  Check with your accountant to make sure you can use it.

Ask them if appraisals will help you.  Normally for this small amount and your wanting to demo I would say don’t do a cost segregation.  But you might get someone to help strip the “Land” cost out.

Bryan Johns · Answer

Thank you. The county recently assessed the value at $350k, which is the same that I paid for it. Their split was $130k improvements and $220k land. Will whoever does the cost seg factor that in? Or do I need an actual appraisal?

If I try to do this myself, is my starting point for bonus depreciation $130k minus building structure? Or do I start at $0 and add elements until there's nothing left?

Henry Clark · Answer

Our gravel road was $200k.  Just depends on length and prep work.  Even a small gravel road is $10,000 for prep work and gravel.  Just need to chip away at the Land value of $400k.

Bryan Johns · Answer

Thank you. No "driveway" as it is just a gravel road, but the other stuff should qualify.

Jim P. · Answer

Ashish's posts here are AI generated.  He's been caught doing it over and over but for whatever reason he hasn't been banned yet.  When you see AI content here, click the "..." and then Report Abuse.

Julius Vincent · Answer

Hey @Bryan Johns - I agree with others that there could absolutely be short-term tax value in putting the structures into service before demolition.

If you use the property (even temporarily) in an active trade or business (like storage rental to another business you own) then the structures may qualify as depreciable assets, and with 100% bonus depreciation now back in effect (under the new law for properties acquired after Jan 19, 2025), you could potentially write off a large portion of that $250K improvement value in year one.

The key is that the structures need to be placed in service (i.e., actively used in a business) before you demo them. Once demoed, you lose the ability to depreciate. So even if it’s just for a year or two, using the buildings as temporary storage or workspace could unlock meaningful deductions.

There are a few caveats, like making sure the use is legitimate, tracking any related-party transactions properly, and planning for potential depreciation recapture if the property is later sold. But the savings can be well worth it.

Bryan Johns · Answer

Thank you so much for the info. I will send you an email to discuss more.

Strategy: Depreciate or demolish?

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