A real-time identification algorithm for structures with magnetorheological dampers as energy dissipation devices is described. These dampers are modeled by the use of a modified LuGre dynamic friction model, whose internal state is calculated with a nonlinear observer. The convergence analysis for the identification-observer scheme is presented. The scheme is intended for real time protection of structures during seismic excitation. To reduce the complexity of calculations for large structures, the identification scheme can be applied to simplified structure models preserving at least the first two fundamental frequencies of vibration. Numerical simulation results are included.