Cost seg and then demo?

[Bryan Johns]

We purchased some property for $350k with two old buildings on it. The county also recently assessed the value at $350k, split between $130k improvements and $220k land.

We had planned to demo the older structures (one is a small house, one is a large barn) in 2025 and then begin to develop the land in 2026. However, the demo permit continues to be delayed so we are now thinking of putting the buildings into service (as storage rental space) this year.

My understanding that this would allow us to do cost seg to get depreciation in 2025. Questions for the experts:

1. If we take bonus depreciation in 2025, can we still demo in 2026 with no issues?

2. can I do DIY cost seg given this is such a small property? If so, what is the best option for that?

[Ashish Acharya]

@Bryan Johns,

You’re on the right track. A couple clarifications that might help:

If you don’t do a cost seg and just put the buildings into service, then demo later, you can generally write off the remaining adjusted basis of the building as a demolition loss (since you didn’t buy it with the intent to tear it down - establish this).

If you do a cost seg and take depreciation (including bonus), your basis just gets reduced by what you already wrote off. When you demo, you still get a loss, but it’s smaller—because the bonus depreciation is already in your pocket. It’s not really “recapture” in this case, just a reduced loss.

On DIY cost seg: for something this size you probably don’t need a full-blown engineering study. A lot of people either use DIY software (like KBKG’s tool) or take a rule-of-thumb allocation and have their CPA review it. Just make sure you’ve got some backup (photos, estimates, etc.) so if the IRS asks, you can show how you came up with the numbers.

So yes, you can bonus in 2025 and still demo in 2026 with no problem—the tradeoff is whether you’d rather have a bigger upfront bonus depreciation now, or a bigger demolition loss later.

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