Nonlinear time-domain system identification (SI) algorithm is proposed to assess damage in a shear building by synchronously estimating time-varying stiffness and damping parameters using measured acceleration data. Mass properties have been assumed as the a priori known information. Viscous damping was utilized for the current research. To chase possible nonlinear dynamic behavior under severe vibration, an incremental governing equation of vibrational motion has been utilized. Stiffness and damping parameters are estimated at each time step by minimizing the response error between measured and computed acceleration increments at the measured degrees-of-freedom. To solve a nonlinear constrained optimization problem for optimal structural parameters, sensitivities of acceleration increment were formulated with respect to stiffness and damping parameters, respectively. Incremental state vectors of vibrational motion were computed numerically by Newmark-${eta}$ method. No model is pre-defined in the proposed algorithm for recovering the nonlinear response. A time-window scheme together with Monte Carlo iterations was utilized to estimate parameters with noise polluted sparse measured acceleration. A moving average scheme was applied to estimate the time-varying trend of structural parameters in all the examples. To examine the proposed SI algorithm, simulation studies were carried out intensively with sample shear buildings under earthquake excitations. In addition, the algorithm was applied to assess damage with laboratory test data obtained from free vibration on a three-story shear building model.