As you can see it is a very little number and often times a negative.Very often one can have a “book” loss (the loss due to depreciation ) but still experience a “cash flow” positive home.

It doesn't sound like he is going to take his $40,000 loss and finish it for the price he (or you) agreed to.

Cut your losses and offer to let her out of the lease with her full security deposit back.

Regardless of where you move the funds (aside from creating another taxable event), the tax return will need to show the taxable event and account for the various associated "stuff" (cost basis, depreciation unrecapture, and passive allowed losses, etc.). 

Tell the builder what's going on and walk away.They will be able to sell the property once it's built or tailor it to the new buyers so they won't be at a loss and you will be able to breathe while starting your new business. 

Without answering your question directly, here are some the thoughts just off the top of my head.Look at the last tax assessment for the % land compared to the structure %, then figure the market value of the place unburned.apply your land %.Less Scrape Cost to get the old debris out to the dump (including any insurance needed to have workers on the site).Can you reuse the utility meters, drop and electrical breaker panel--if so keep them.Same with kitchen and bath things.This will give you what I'd call "Preliminary Reference Book Value" for the lot--post loss. 

That is why depreciation is sometimes called a "Paper loss".

My understanding is that with the LLC, the business liability coverage should cover most lawsuit situations, and if it isn't enough, the LLC's asset (i.e. the property) is the only thing that is at risk for a loss to me.

In most cases, rental properties financed by debt have tax losses, even if they produce positive cash flow.  

What the primary concern is ensuring that the existing lender that your are now paying is listed as the 1st loss payee on the policy (mortgagee clause).