Ultimately, green demolition is a lucrative practice—it can decrease landfill costs, for one thing. Whether you’re a commercial enterprise looking for cost-effective demolition approaches, or a homeowner hoping to keep renovation costs down, demolition salvage efforts can represent savings in another major category: Tax write-offs.
Here’s how it works: The demolition client hires a deconstruction contractor to salvage building materials. Rather than destroying the structure with a wrecking ball, the salvage demolition contractor dismantles it by hand. Lighting, roofing, flooring, cabinets, windows, doors, and even framing lumber are preserved intact and donated to charitable organizations for tax purposes. This does require more labor than traditional demolition, but in the end the building owner saves money after receiving the tax write off.
As an example, Pamela and Scott Weiss saved about $66,000 by following this deconstruction process. The Weisses paid roughly $20,000 for deconstruction—about twice the cost of traditional demolition. An appraiser valued the deconstructed materials at $159,000. Come tax time, the Weisses can apply that $159,000 write off to their tax bill, which will work out to about $66,000 of savings according to their tax bracket.
The IRS has long offered this tax benefit, but it has only gained popularity recently, mainly in West coast cities including Portland and Seattle. If you’re hoping to score a major tax break from your residential demolition project, here’s how.
Step One: Choose a Qualified Tax-Exempt Charitable Organization.
Before you begin, select a non-profit group to accept your building material donations. It will be easiest to donate all materials to one place; however, in order to maximize your salvage value, you may need to work with multiple organizations. As you research non-profits that accept salvaged building materials, here are a couple of ways to verify tax-exempt status:
- Visit the IRS’ Exempt Organizations Select Check website, where you can search for groups that are eligible to receive tax-deductible charitable donations.
- Request the organization’s Form 990 or Form 1023, which IRS uses to qualify non-profits for tax-deductible charitable donations.
Step Two: Choose a Licensed Deconstruction Contractor.
Quality deconstruction requires skill. Take some time to choose a deconstruction partner that will maximize salvage value by minimizing damage. Ask contractors for references. Do background research. Consider asking your charitable organization for contractor recommendations. Select a deconstruction expert with proven experience.
Step Three: Hire an IRS-approved Appraiser to Determine Donation Value.
If your salvaged materials have a value in excess of $5,000, you must hire an appraiser. To meet IRS building material donation guidelines, the appraiser must be certified, and must follow the standards of the Appraisal Foundation. Choose an appraiser with strong education, training, and experience in the materials you will be donating.
Step Four: Submit Tax Forms.
The charitable organization you’ve selected will provide a letter itemizing the materials you donated. Next, you or your tax preparer must complete IRS form 8283. The appraiser must sign Section B, Part III and the non-profit that is receiving your donation must sign Section B, Part IV.
Please note that these guidelines are intended as an introduction to the donation process; as with all things tax-related, it is best to check with your tax preparation expert for in-depth analysis before deconstruction begins. Additionally, we recommend that you keep close records of all documents you receive throughout the deconstruction and appraisal process, including cancelled checks, receipts, acknowledgement letters, appraisals, and previous years’ tax forms.
How much can you expect to receive in a tax write off? Well, it could be a surprisingly significant amount, perhaps even enough to entirely cover the costs of demolition! Appraised donation values vary by location, as well as other factors such as the quality of fixtures, age of materials, and so forth. We know of one 3,800-square-foot building in Bellevue, Washington that was assigned an appraisal donation value upwards of $175,000! The bottom line is that it’s financially smart to preserve and donate reusable materials from demolition projects.