Tax treatment for demolition of building for investment purposes

[Steven Scheibe]

Hi,

I am looking for some tax guidance on my first ground up construction. In this scenario, say I acquired the property for $1M and the city tax assessor has it documented that my land is worth 900k and the building is worth 100k. I demolished the house in year 1 and that cost 50k. I have not yet completed construction on the home, but need to file year 1 taxes.

Do I report any loss for the building I got rid of in year 1, or am I just increasing my book basis by capitalizing the 50k demolition cost to the book basis of my acquisition price?

This is for CA, in LA County, even though I do not think this matters.

Acquired property with the intent to demolish.

Thanks for the help,

Steven