borges wrote:

- quote -

When you demolish the old house, any part of its remaining
basis goes into the LAND component. Therefore, at the time
of the later sale, it's a non-depreciable asset (which can't
be recaptured if it can't be depreciated). You will still
have a capital gain on its sale.

I don't see any substantial tax benefit here.

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I'm thinking about renting out my old house for a couple of
years. The house is valued by the municipality at 100K and
the land at 100K. The house is in bad condition and has
many structural problems.

May I perform the following scenario: rent the house out
for 2 or 3 years. I would of course depreciate the house
(not the land). I would then demolish the house and build a
new house. I would live in the new house for two or more
years (to obtain the capital gains exclusion benefit)
 and sell it. Am I right in thinking that since
the old house was demolished, there is no recapture of the
depreciation when I sell the new house? It seems too good
to be true.

Thanks for your attention,

Jim
PS: I assume there is no such thing as an accelerated
depreciation schedule for the old house? I have to
depreciate it on a 27.5 year schedule?

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