I purchased a home off of Ebay sight unseen (not my brightest move) based on a description of the property and location. My original intention was to rent the place out, knowing full well that it probably needed some work in order to get it in rent-able condition. Long story short, the city required that I tear the property down... which I
did at an expense of $3500. Now I still own the land but am wondering how to handle
the taxes regarding this purchase and the loss incurred through paying taxes and the
tear down of the property?

You can deduct these costs as part of the capital loss you will claim when you finaly sell the land for whatever you get for it.