So I plan to replace and demo all of it with help from a contractor.

@Zev Jankovic I’m using payroll4free and their initial demo is scheduled next month so I don’t know how exactly they handle it.

@Matteo Foglieni - There are tons of different software out there, I'd suggest doing demos with a bunch of them to see which one works best. 

When you are demoing or renovating a building where you tear out HVAC units, lighting, and other components, these assets are considered retired or abandoned from the building.

You will be paying for demo reinstall etc.And I’m sure you would actually be open to some kind of liability issues if they were hurt and you had given them the go ahead

How do I account for the $12000 demo cost and do I need to adjust depreciation?

After which you can have a demo crew bring down what ever structure remains.

I would think it would be a red flag unless the first permit you pulled was an easy permit and just for demo or some interior work.There may be a way to modify the existing permit but I am not 100% sure maybe @Samuel Pavlovcik or @Prashanth Mahakali have dealt with this before?

While I can demo the house myself, why would I when I can hire that out at $20 p hour when I make hundreds an hour doing other tasks like finding deals, raising capital, managing the business, etc.

I typically do all the demo, interior painting and some finish work.