Why Demolition is a Problem
When a property owner needs to take down or renovate an existing structure, they look to demolition. Demolition is the brute force take-down of building materials to reduce a structure to rubble or prepare it for renovation. Currently, demolition is just an accepted cost of building a new structure or renovating an existing one. Along with the labor and materials needed for new construction, property owners have to factor in how much it’s going to cost in labor to take down the existing structure and haul away the material to a landfill. To a property owner, a structure that needs to be demolished is worse than worthless, it’s a hefty cost. But what if that same owner could reduce that structure down to its base elements, and then donate those building materials like they would donate used clothes, their car, or canned food? Not only would that donation result in the re-use of the building material, but it would also create a tax benefit for the property owner. Deconstruction and Green Demolition is the tax savvy, eco-friendly, and increasingly popular alternative to demolition that enables property owners to dismantle their structure, donate the resulting building material for re-use, and ultimately get a tax benefit from their material charitable contribution.
How Deconstruction Works
When a property owner needs to take down a structure or renovate a room, they reach out to a deconstruction appraiser. Federal tax code requires that all donations over $5,000 need to be appraised for their fair market value, and building materials would fall into that category for almost every project. An appraiser will look at the structure and determine a value of the structure based on the fair market value of its separate parts. Once the value is established and the property owner agrees to move forward with deconstruction, a deconstruction contractor comes in. These deconstruction contractors are either construction contractors who are familiar with taking apart buildings, or non-profits who use these opportunities as workforce development projects to help train disadvantaged individuals on a valuable trade. These crews come onto the property and start to strategically remove and sort materials from the structure as they break the building down into its components. Shingles, nails, light fixtures, moulding, siding, window-frames, lumber, and anything else that can be re-used is removed and sorted by the deconstruction team. After the structure is completely dismantled, a non-profit that deals specifically with re-usable building material shows up and hauls away the material for re-use or resale. Once the non-profit accepts the donation and the appraiser delivers the appropriate documents to the property owner for the IRS, the process is complete and the property owner now has an eco-friendly tax benefit instead of a costly pile of landfill material.
Benefits of Deconstruction (Tax, Environment, Community)
With the recent changes of federal tax code, material donations is one of the few possible tax benefits left to taxpayers across the nation. While many people know that they can donate clothes, food, or their car and get a charitable tax benefit, very few people know that they can actually donate the building materials and furniture inside of their unwanted structures or rooms for the exact same charitable tax benefit. People may not be as familiar with this kind of donation, but non-profits across the country are desperate for building material to resell, utilize in community shelter projects, or even use themselves to expand their abilities with new locations. These tax benefits can be significant; often much larger than people who are unfamiliar with deconstruction would ever expect. That’s because building owners think of leftover building materials as junk instead of thinking of them as aged reclaimed and often unique high-demand materials. Bricks that cost 25 cents apiece 30 years ago may now bring in 50-75 cents a brick due to inflation, the rising value of construction material, and the premium contractors will pay for weathered bricks. Additionally, the “fair market value” of the materials inside of a house doesn’t have to equal the amount of money a non-profit can get from the donated materials. Even if that brick’s fair market value is 50-75 cents, non-profits might sell it for 40 cents or less. Building owners who first encounter deconstruction and the tax benefits it can bring are understandably skeptical of the values that their old buildings hold. To be fair, many of the old buildings that are deconstructed aren’t worth much as a whole piece. If you think of a weathered collapsed barn, that structure as a shelter is virtually worthless and at worse, is a costly demolition project waiting to happen. But, if that barn is deconstructed and reduced into piles of timber, old fasteners, hinges, and accessories, the value of the barn skyrockets. Just think of how much a trendy new store or reclaimed furniture manufacturer would pay for 60 year old weathered authentic barnwood to decorate their façade or turn into a coffee table worth hundreds of dollars each. One of the beautiful aspects of deconstruction is that it allows property owners to rescue coveted materials from their properties that may be difficult or even impossible for others to find and recirculate the old material in a completely new structure or project. Even if the materials inside of the house aren’t rare, they’re certainly valuable. A relatively average house that has slid off of its foundation is useless to pretty much everybody… but the 2×4 framing in the walls of that house? Those boards are just as useful now as they were brand-new, and a contractor would love to have discounted used framing for their next project. It’s that value that is evaluated when a deconstruction appraiser gives a fair market value for a building’s materials. Even if the structure is worthless to you, the materials are priceless to dozens of others. Deconstruction allows you to harvest that value by donating the materials to a non-profit, and accepting the tax benefit of donated materials.
Traditional demolition is inherently wasteful. The goal of a demolition project is to knock down the existing structure as cost and time efficiently as possible. The result of optimizing for time means that building materials are rapidly torn apart by machines, packed into dumpsters, and shipped off to the closest landfill to make room for whatever structure is taking its place. Recently, demolition crews have started to recycle demolished material. Unfortunately, recycling destroyed material means that finished building materials are melted down, chipped, and pressed into low value material like plywood and particle board. Perfectly re-usable house frames are torn apart and reduced into wood pulp. What many people don’t know, is that 90% of a building material is deconstructable and reusable. Except for materials like drywall, rotted wood, and broken ceramic, buildings can be taken apart piece-by-piece down to the last nail and re-used. People who are renovating a room or taking down a structure often don’t think of the value of the materials they are throwing away. In this case, one person’s trash really is someone else’s treasure. Old wood boards from a collapsed barn could be coveted by the new trendy bar downtown. The bathroom tile from your renovation may not be at any retail stores, and it’s perfect for someone else’s projects. And the nails and framing from the structure? Contractors know those materials work just as well the second time around, and the builders appreciate the discount of reclaimed material. Deconstructing a building doesn’t mean a person is giving away useless scraps of material, but instead it’s a process to reclaim perfectly reusable material that in some cases has actually increased in value with aging. With deconstruction, property owners can drastically reduce the amount of material going to landfills and incinerators, produce marketable and valuable reclaimed material, and even qualify for incentives like LEED points.
“Green demolition” and deconstruction actually benefit the local community in ways that traditional demolition can’t. Many deconstruction projects are executed by local workforce development programs. As your building is being dismantled piece-by-piece, disadvantaged workers are learning a valuable trade in incredible detail. Even if a particular project is executed by a for-profit deconstruction company, you’re supporting a local business with a lucrative contract worth 2-3x what a demolition contract is worth. While it may seem backwards that you should be excited about paying more to have your structure removed, remember that you’re actually paying less due to the massive tax incentives. The contractors win, you win, the IRS loses (but tax incentives exist for a reason). In addition to providing more labor opportunities than traditional demolition, deconstruction results in valuable building material being donated to local nonprofits. These non-profits, in turn, either sell the material through retail stores, or use the donated material to build community shelters, activity centers, and more. Because this material is acquired by the non-profits at virtually no cost, the barrier for expanding their physical locations is drastically lowered, making local non-profits thrive. Then you have to consider where that material is being used. Either it’s being used at a discount in place of brand-new structural materials like wall framing, or it’s being sold at a premium because the material has appreciated in value over time and somebody is excited to receive that ancient bathtub you just pulled out of your 70 year old house. Deconstruction dismantles your house, but it builds up your local community with more labor opportunities, material support for non-profits, and recirculated material that has been locked up in your building’s structure.
Deconstruction for Contractors
One of the incredible things about deconstruction is that all parties involved benefit from the intensive process. General contractors make more money through more intense projects, and the property owners makes more money through the tax benefits of donating reclaimed building material. Contractors are looking for more projects, and more specifically, more lucrative projects for their team. Instead of a one week demolition project that involves two people and a piece of heavy machinery to collapse and haul away a house, contractors now have the opportunity to spend almost the same amount of time with 5 people taking apart the house by hand (typically 10 to 14 days vs. 7). Contractors can charge more for deconstruction because it is more labor intensive than demolition. While this would be a hard sell to any property owner unless you branded it as “artisanal, craft, local, hand-tooled, eco-friendly home dismantling”, the massive available tax incentives actually make a deconstruction project significantly cheaper than demolition in the long-run. The side-effect of cheaper dismantling for the homeowner is that the cost barrier for new projects is drastically minimized. If a property owner is considering a kitchen renovation at $18,000, and they learn that their old kitchen materials can be donated for a $6,000 tax benefit, then the property owner is now more likely to renovate because the cost has now been significantly reduced. Contractors can provide value for their clients by raising awareness about deconstruction as an option to make their building projects eco-friendly, good for the community, and significantly cheaper.
Deconstruction for Real Estate Professionals
Real estate professionals also benefit from deconstruction, but in a more indirect way than contractors. Real estate professionals fight an up-hill battle when they are trying to sell a property that needs to be torn down or renovated. Not only is the value of the unwanted structure added to the price tag of the lot, but prospective buyers are very aware of the cost to demolish or renovate the structure. Given two lots of equal value, in similar locations and with identical amenities, buyers would rather have an empty lot than a lot with a tear-down structure on it. While currently buyers just have to accept those costs as part of the package with the lot, deconstruction is flipping that on its head. Imagine if buyers actually preferred lots with teardowns or fixer-uppers over comparable empty lots. With deconstruction and the associated tax benefits of donated building material, teardown structures turn from an accepted cost into a net benefit. To simplify the explanation, instead of having a lot with a costly project sitting on it being compared to an empty lot, real estate professionals can point out that the buyers are actually choosing between an empty lot and a pile of cash tied up in building material and a 2 week project. While not every deconstruction project will result in a large cash-positive result (i.e. getting $100,000 in tax benefits from a $30,000 deconstruction project will give an estimated $10,000 cash benefit), all deconstruction projects will be cheaper than traditional demolition. By educating clients and offering deconstruction as an option, real estate professionals build their authority as an expert in the market, lower the cost barrier of buying teardowns and renovating, and increase their competitive edge with a lesser-known tax savvy and eco-friendly alternative to demolition.
Deconstruction for Hotel, Restaurant, and Commercial Building Owners
To commercial building owners and operators, renovation is just another part of company maintenance. Whether a building needs a renovation because it needs a face-lift, or it needs to be rebranded from an acquisition, every commercial building owner knows that renovations are expensive but necessary. Deconstruction applies to commercial projects as well, and companies can leverage the tax benefits of deconstruction to dramatically reduce the cost of renovations. Deconstruction is not a well known term or tactic for companies simply because the tax laws that govern building material donations just aren’t on the radar of commercial building owners. Instead, companies try to sell off dismantled appliances, furniture, and building materials themselves, throw away what they can’t sell, or hire someone to get rid of the material in any way they can. These companies aren’t experts in building material retail, so expecting any kind of meaningful return from a self-directed project is setting high hopes for a renovation project. As deconstruction becomes a more popular alternative to demolition, commercial companies are taking note and are beginning to use deconstruction to create significantly lower cost barriers to renovating restaurants, hotels, and other commercial buildings. What’s great about deconstruction from the commercial standpoint, is that deconstruction appraisers can evaluate the fair market value of the materials inside of a commercial building, connect the company to a trusted deconstruction team, and then route the deconstructed materials to a non-profit so that the commercial building owners can enjoy the tax benefits. Deconstruction is all encompassing for a renovation project, and can include furniture, kitchen appliances, lighting fixtures, cabinets, and decorative woodwork, as well as the structural building material of a location. All the commercial building operators have to do is open the door and watch the materials leave for a new life.
Deconstruction for Homeowners
Homeowners are taking advantage of deconstruction across the nation as they turn unwanted structures into net gain tax benefits, drastically reduce the cost of renovations, and lower the carbon footprint of construction. Whether a homeowner is deconstructing for the environmental benefits or the tax benefits, the owner receives both. Often homeowners are intimidated by the concept of deconstruction because they may not have heard of it before or it sounds too good to be true. The reality of the situation is that deconstruction is becoming the more popular option to demolition, and material donations are one of the last remaining tax benefits available for taxpayers. The part of the deconstruction project that homeowners really need help with is the coordination of all of the different people that need to come together. According to federal law, all donations worth more than $5,000 need to be formally appraised by an accredited appraiser. This includes donations of cars, property, antiques, luxury goods and anything else that crosses the $5,000 threshold. To take full advantage of the tax benefit of donating used building material, homeowners will need a specialized deconstruction appraiser. Thankfully, once a homeowner finds a deconstruction appraiser they trust, their worries are over. Quality deconstruction appraisers have a network of deconstruction contractors who will do the actual deconstructing, and non-profits who will take care of hauling away the building material and formally accepting the donation. Once homeowners realize that all they need to do is contact a deconstruction appraiser to get the ball rolling on their deconstruction project, the barrier to deconstruction disappears.
The ”Catch” with Deconstruction
You can be eco-friendly, support your community, and make tens of thousands of dollars off of a project that you were going to pay other people to do… so this must be too good to be true, right? Honestly, the only reason why people aren’t more familiar with deconstruction is because they aren’t familiar with the federal tax code around charitable contributions. If everyone knew how much of a tax break they could get from deconstructing instead of demolishing, demolition would be a thing of the past and our carbon footprint from construction waste would be halved. That being said, every project has its tradeoffs and deconstruction is no exception. The tradeoffs for choosing deconstruction over demolition is that deconstruction has a larger upfront cost compared to demolition, and there’s the possibility of you having to talk to the IRS because of the tax benefits. Here’s why that matters:
Deconstruction is more “expensive” upfront when compared to demolition because it costs more to take a house apart by hand than it does to knock it over, and you don’t receive your tax benefit as soon as the first nail comes out of the framing. Although you won’t have to pay a traditional “haul away” fee to dispose of your building materials in a landfill if you choose deconstruction, you will have to pay more upfront for the labor hours required by the deconstruction team. Here’s a table that breaks down the cost differences between demolition and deconstruction.
Dealing with the IRS is rarely pleasant. If you knock down a house and drag it away, you don’t have to deal with the IRS but you also leave tens of thousands of dollars on the table. Thankfully quality deconstruction appraisers deal with the IRS every day and know exactly what they need, and when they need it to successfully address any concerns the IRS may have about material donations. Being audited by the IRS for a charitable donation is very rare, but with the increasing volume of deconstruction projects occurring across the nation, the number of IRS inquiries will inevitably climb proportionately. This is where the importance of a specialist appraiser comes in. The IRS is a scary entity to the average taxpayer. To specialist appraisers, dealing with the IRS is a routine activity, like a court appearance for a lawyer, or an operation for a surgeon. There are appraisers for many things, but unless an appraiser is specifically qualified to appraise building materials, you may end up with a fair market value number that is indefensible.
Green Donation Consultants
Green Donation Consultants is the fastest growing, best qualified, and recognized “last word” in deconstruction appraisals in the US. We pride ourselves on our ability to help a property owner through every step of the eco-friendly deconstruction process, from an initial free consultation to see how much their structure is worth, to the coordination of the contractors and non-profits, and finally to the approved tax benefit for a property owners tax return. Our network of deconstruction professionals ensures that property owners have frictionless access to all stages of a deconstruction project. Green Donation Consultants has defended it’s clients during IRS inquiries over the course of 275 million dollars worth of charitable contributions. As the premier expert appraisal firm for deconstruction, Green Donation Consultants has been hired time and time again by CPAs, property owners, and lawyers to defend property owners who have hired unqualified appraisal firms for their deconstruction project. In every instance, whether Green Donation Consultants is defending their own valuations or helping a property owner who chose an unqualified appraiser with a new appraisal, Green Donation Consultants has successfully defended their own appraisals against the IRS. Again, IRS inquiries are very rare, but if you need to respond to the IRS, it’s best to have the nations most successful deconstruction appraisers on your side. If you’re a contractor or real estate professional who would like to learn more about deconstruction, let us know here, we’re always happy to talk. If you’re a property owner who is considering demolishing or renovating a structure and you are interested in just how much of a tax benefit you could get by deconstructing your structure, reach out to us here for a free estimate.