I purchased a property in February with the intention of renting it out.
The purchase price through an auction was rather low ($1500) and I understood that it may need some rehab to make it rental ready. As it turned out, the city came in and determined that the property was not habitable and requested that I tear the place down. $3500 later, I now own a 1/4 acre corner lot. What are the tax implications of the purchase, closing costs, paying taxes, and paying to have the house bulldozed?
You should be able to get a reduction in your assessed value and a reduction in your property tax. Get ahold of your local county auditor and request the proper forms to have your property reassessed. They will want some pics and details of what changed on the property (no house). Also they only review a certain time of the year, March where I’m at, if approved they will prorate to the application date.
Frank, thanks. I was able to get the assessed value adjusted for land only through the county. Regarding my taxes, I’ve taken a loss for having to bulldoze the property. I’m asssssuming that would be an expense that can be deducted on my taxes?
In my opinion your costs are adjustments to basis. Seems counterintuitive, but I classify the demolition as a capital improvement.
demolition is part of the cost of a new structure. capitalized and depreciated.
This assumes that the old structure was of zero value when the land was purchased, which appears to be the case.
closing costs are then treated as if you had purchased raw land - part of the cost of the land.