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Deconstruction Of An Old House Can Have Huge Tax Benefits

When erecting a new home, a growing number of environmentally conscious owners are opting to ‘deconstruct’ the old one and donate the parts rather than demolish it.

For several years, Detelina Ivanova had been eyeing a rundown house that was for sale on an overgrown, one-acre lot in Vienna, Va. Just 1,200 square feet, the 1950s two-bedroom house with one story and a basement had been vacant for 10 years, sinking into deeper disrepair even as larger new houses were replacing other vintage houses in the neighborhood.

The house itself was not worth repairing, but Ivanova and her husband saw opportunity in the lot. Large and well-located, it was the ideal site for a large new custom home. As soon as the price dropped, Ivanova bought it in April 2015.

She chose Stahl Homes in Vienna to design and build a 7,000-square-foot, Craftsman-style custom house on the property. Of course, to prepare the site for the new house, Ivanova had to clear away the old one. Stahl suggested a way to accomplish that while potentially netting a substantial tax break for the family.

Called deconstruction, it entails taking a house apart, piece by piece, down to the foundation. The majority of what is removed from a house via deconstruction can be recycled or reused. Everything removed from the house and donated to a qualified 501(c)3 charity can be claimed by the property owners on their taxes as a donation at fair market value.

The Ivanova appraisal report documented that her donation had a fair market value of $131,500. The net amount of the donation represented a $51,000 tax benefit. The family received a substantial tax refund.
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“For a typical taxpayer who pays approximately 30 percent between state and federal taxes,” says Patrick Smith, president and chief executive of NoVaStar Appraisals in Fredericksburg, Va., “a $131,500 tax deduction is equal to an actual cash value of $39,450.”

Marishane Stahl, who owns the custom home building company with her husband, Mark, says Stahl Homes has bought several houses and replaced them with houses for sale in the past two years; the company has used deconstruction to remove the existing structures at three of the sites. “It’s a great way to salvage material,” Stahl says. “We feel good that there is less waste, plus the tax benefit can be significant.”

The Stahls regularly recommend that their clients look into the benefits of deconstruction.

When Detelina Ivanova bought a 1950s two-bedroom home in Vienna, Va., she hired DeConstruction Services of Fairfax to dismantle the home piece by piece rather than demolish it. Ivanova donated the materials from the home and received a tax break.

Process and costs…

Deconstruction requires two specialists: an appraiser and a deconstruction company. A typical home appraisal, designed to document market value for mortgage purposes, does not meet the IRS requirements for a charitable donation.

The deconstruction appraiser determines what materials can be salvaged and estimates the value of the donations. As the process unfolds, the appraiser prepares a report that lists every component to be donated and its fair market value; completes IRS Form 8283 for the donor valuing the material (the nonprofit recipients complete the form, too); ensures that the donor has the required documentation to claim full benefits from the donation; and stands behind all this if the IRS has any questions about the donation.

The deconstruction company dismantles the house, sorts the materials and transports them to centers for recycling or resale. “Working with information from the appraiser, the deconstruction company will give the client a quote for the cost of deconstruction; this will include an approximate net tax savings,” says Stahl.

Deconstruction costs more than conventional demolition because the materials need to be carefully removed and preserved in usable condition. Stahl says demolition might cost $8,000 to $11,000 for a typical house and take up to a week to complete.

Deconstructing the same house might cost as much as $24,000, she says, and take two weeks. (Interior deconstruction can be started before receiving a demolition permit, so the extra time can be less than two weeks.)

Add to that the fee for full appraisal services — perhaps $1,500 to $3,500, depending on the amount of materials to be inventoried and valued. All of this has to be paid upfront. “That’s the only downside,” says Ivanova, whose pre-deconstruction bills came to about $23,000. But the donated materials from a deconstructed house often far outweigh that.

To start the process on her property, Ivanova contacted NoVaStar Appraisals, which works throughout the eastern United States. Smith, company president and CEO and a certified “master appraiser,” says the company handles about 600 deconstruction projects a year.

Demand is increasing, he says, because “people are becoming more aware of the substantial benefits of the noncash charitable donation program.”

Smith says that deconstruction appraisers, including all NoVaStar appraisers, are different from real estate appraisers. They are “qualified appraisers,” having earned designations from independent appraisal organizations demonstrating that they have training and expertise in valuing used building materials. The IRS also uses qualified appraisers to review deconstruction tax declarations.

In August 2015, NoVaStar sent an inspector for a free examination of Ivanova’s old house. The inspector took extensive field notes and many photos for the company to use in preparing a ballpark estimate of the value of the materials. To be a deconstruction candidate, Smith says, “the house must be safe to walk in, structurally sound and fit for human habitation.” As long as it meets that requirement, virtually every house can be dismantled to yield a trove of reusable materials.

Generally speaking, Smith says, “85 to 90 percent of a house can be recycled or repurposed. About the only things that cannot yet be salvaged or repurposed are drywall, rotted materials and broken pieces of ceramic tile or marble.”

The majority of what is removed from a house via deconstruction can be recycled or reused.  “It’s a great way to salvage material,” says Marishane Stahl, co-owner of custom home building company Stahl Homes.

Down to the foundation…

A few days after inspecting the Ivanova house, NoVaStar presented an estimate of $120,000 to $140,000 in fair market value for the materials that could be salvaged through deconstruction. The appraisers based the estimate on an inventory of the components of the house; the company’s comprehensive database of building material values; and the appraisers’ expertise.

Ivanova next requested a proposal from DeConstruction Services in Fairfax, Va. Amy Hughes, vice president of operations and human resources manager of the residential and small commercial building deconstruction company, says deconstruction started on the West Coast but is taking hold on the East Coast. Since DeConstruction Services launched in 2004, becoming one of the first home dismantling firms on the Eastern Seaboard, “we’ve done hundreds of houses,” she says.

The company will dismantle selected parts of houses, such as kitchens and bathrooms, but whole-house deconstruction is in most demand. All the removal, de-nailing, bundling, counting and sorting work is done by hand. “We don’t have or use any heavy equipment,” says Hughes.

DeConstruction Services uses a dumpster company that separates recyclable material from the debris. “For a typical whole-house take down,” says Hughes, “as many as six workers could be on-site deconstructing the house.” The interior is dismantled first. Next to be removed are the roofing and lumber, down to the brick walls and foundation. Last to go are the windows and exterior doors. “Deconstruction has been described as the reverse engineering of constructing a house,” says Hughes.

What typically can be salvaged? The list is long: hardwood flooring, carpeting, interior lumber, beams, cabinets, appliances, molding and trim, doors, switch plates, light fixtures, ceiling fans, mantels, bathroom vanities, toilets, mirrors, tubs, shower surrounds, granite and laminate countertops, sinks, windows, vent covers, shelving, insulation, heat pumps, hot-water heaters, air-conditioning units, washers and dryers, screens, siding, slate roofing and sub-roofing, flagstone, bricks and decking. For a very old house, “the lumber alone is worth a lot,” says Hughes.

What’s left? The concrete foundation, swept clean. “The excavator knocks out the cinder block walls and digs out the foundation for a new house,” Hughes says.

After weighing the costs and tax benefits, in consultation with her tax accountant, Ivanova decided to go ahead with the deconstruction. In November 2015, DeConstruction Services dismantled the old house.

Some of the appliances were already gone, but DeConstruction Services retrieved the rest, as well as bricks, siding, lumber and trim, flooring, doors and windows, amantel, and dull kitchen cabinets which, Ivanova said, “someone could sand, paint and reuse.”

“At least 80 percent of what’s removed in a deconstruction, including clean metal, wood and asphalt shingles, can be recycled or reused,” Hughes says. DeConstruction Services transports everything that is saved from the house to a nonprofit organization in Springfield, Va., called the Recycled Building Network, or ReBuild, “to be recirculated into the community” via resale and donation, Hughes says.

A deconstruction company dismantles the house, sorts the materials and transports them to centers for recycling or resale.
A liability into an asset

Hughes says that at ReBuild the primary customers are homeowners and builders. They hunt for building products with character, vintage style and perhaps hard-to-find features or dimensions. Artists buy materials to incorporate in their work.

Furniture makers come in search of fine wood. ReBuild donates some lumber and building materials to Boy Scout troops for their community projects, and gives schools raised plant beds that have been made from reclaimed lumber obtained through deconstruction projects.

Numerous other nonprofit organizations in the area accept and sell donated building materials, architectural salvage and tools, including Community Forklift, Habitat for Humanity ReStore and Loading Dock. Donations may be dropped off or picked up.
Some nonprofit building products retailers, such as Second Chance and Brick + Board, have an added career development component. Both of these Baltimore-based operations train and hire city residents who otherwise might have trouble finding work.

Brick + Board, the retail arm of four-year-old Details Deconstruction, a dismantling enterprise that is part of the 501(c)3 organization Humanim, sells materials that Details recovers from deconstruction of vacant houses in Baltimore under a master service contract with the city. Details also deconstructs houses for property owners along the East Coast.

Jeff Carroll, director of Details Deconstruction, says the organization employs workers who have significant barriers to employment because of poverty, lack of education or previous incarceration. “The deconstruction work in both public and residential markets, along with the resale of material, is creating 50 jobs for people who would otherwise be unemployed,” says Carroll.

Following Ivanova’s house deconstruction, NoVaStar prepared a 60-plus-page appraisal report. These highly detailed reports often are very lengthy, says Smith, because “I believe in over-supporting the value. More is better when it comes to the IRS.” A well-documented appraisal, he says, presents an itemized listing — material, description, quantity, size, value — of every individual component donated.

Smith sees three important benefits to deconstruction. One is “a second life for materials, keeping them out of the landfill and thereby extending the life of the landfill.” Another is that donation to nonprofit groups “financially helps groups that support the less fortunate in our own communities.” And third, the tax benefits are huge for the donor. “It’s a win-win situation for everyone involved.

“Deconstruction has the ability to turn a dead liability — demolition costs — into a significant asset,” adds Smith. “I don’t know why deconstruction is not done by everyone who is taking down a house or even just remodeling a kitchen or bathroom. They are leaving money on the table every time they do not take advantage of this program.”