What is the partial disposition election for rental property?

The partial disposition election under Treas. Reg. §1.168(i)-8 allows a rental property owner to recognize a loss (write off the remaining undepreciated basis) on a structural component that is replaced — such as a roof, HVAC system, or windows — in the year the old component is disposed of. Without this election, you continue depreciating the old component even after it's been replaced.

How do I calculate the remaining basis of my old roof?

To calculate the remaining basis, you need to know: (1) the original allocated cost of the old roof component when the building was purchased, (2) how many years of depreciation have been taken, and (3) the depreciation method used. Subtract the accumulated depreciation from the original component basis to get the remaining (undepreciated) basis you can write off.

Is the partial disposition election required when I replace a roof?

No, the partial disposition election is optional — you can choose to make it or not. However, it is almost always beneficial to make the election because it accelerates a deduction (the remaining basis of the old component) that you would otherwise wait years to recover through standard depreciation. The election is made on your tax return for the year the old component is disposed of.

How do I determine what portion of my building basis belongs to the old roof?

If you have a cost segregation study, it may have identified roof costs separately. Otherwise, you can use a reasonable allocation method — typically the estimated replacement cost of the old roof component as a percentage of the total building replacement cost at the time of purchase. A qualified appraisal or contractor estimate can support this allocation.

April 6, 2026 · 8 min read

Partial Disposition Election for Replaced Components

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When you replace a major structural component in your STR—a roof, HVAC system, windows—you can elect to immediately write off the remaining undepreciated basis of the component you removed, under Treas. Reg. §1.168(i)-8. Without this election, you would continue depreciating the old (already-gone) component for decades while also depreciating the new replacement.

The Problem This Election Solves

Here's the situation without the election: You purchased an STR in 2018 for $450,000 (building basis $360,000 after land). The original roof was part of that purchase and had an allocated cost of $28,800 (8% of building value). You've been depreciating the entire building over 27.5 years. In 2026—year 8 of ownership—you replace the roof for $32,000.

Without the partial disposition election, you are now depreciating:

The original building (including the now-gone old roof)
The new replacement roof at $32,000 over 27.5 years

You are paying tax on income while claiming depreciation on a roof that no longer exists. The partial disposition election fixes this by letting you recognize the loss on the old roof component in the year of replacement.

How the Calculation Works

Roof Replacement After 8 Years of Ownership

Partial Disposition Example

Building purchased 2018 for $450,000. Building basis: $360,000. Roof allocated at 8% = $28,800 original cost.

Annual depreciation on $28,800 (27.5 yr): $28,800 ÷ 27.5 = $1,047/year
Depreciation taken on old roof (8 years): $1,047 × 8 = $8,376 (approx.)
Remaining (undepreciated) basis of old roof: $28,800 − $8,376 = $20,424

With partial disposition election: Deduct $20,424 as a loss in 2026
New roof basis: $32,000 depreciated over 27.5 years starting 2026
Tax benefit at 30% rate: $20,424 × 30% = $6,127 in immediate tax savings

Components That Qualify for the Partial Disposition Election

Component	Typical % of Building Value	Qualifies?
Roof (structural)	5–12%	Yes
HVAC system	5–10%	Yes
Windows (all or substantial)	3–8%	Yes
Plumbing system	5–8%	Yes
Electrical system	4–7%	Yes
Flooring (full replacement)	2–5%	Yes
Single window repair	Minimal	No (repair, not replacement)

How to Make the Election

The partial disposition election is made by filing the election statement with your tax return for the year the old component is disposed of. The election:

Must be made on a timely filed return (including extensions) for the tax year the component is disposed of
Requires you to identify the asset, the disposed component, and calculate the remaining basis
Is reported on Form 4797 as the disposition of depreciable property
Cannot generally be made on an amended return after the due date

Timing Is Critical

The partial disposition election must be made in the year the old component is replaced. If you replace your roof in 2026 but forget to make the election, you cannot generally go back and make it on an amended return later. Make this a conversation item with your CPA every time you complete a major replacement project on your STR.

Allocating the Original Component Cost

The most common challenge is determining what portion of the original building basis should be allocated to the replaced component. Several methods are acceptable:

Method 1: Cost Segregation Study Allocation

If you had a cost segregation study performed, it may have identified the roof as a separate component with its own basis. This is the cleanest documentation.

Method 2: Contractor Replacement Cost Ratio

Get a contractor estimate for what it would have cost to replace the old component when the building was purchased (or use the current replacement cost). Divide that by the building's total replacement cost to get a percentage, then apply it to your original building basis.

Method 3: Industry Standard Percentages

For roofs, HVAC, and other major systems, the industry has established typical percentages of building value. These can be used when more precise documentation isn't available, but contractor estimates are more defensible.

Documentation Tip

When you have major components replaced, get a written estimate from the contractor showing what the old component would have cost to replace at the time of your original purchase. This contemporaneous estimate—saved with your tax records—is your primary support for the component allocation under IRS scrutiny.

Impact on Gain When You Eventually Sell

The partial disposition election reduces your building's adjusted basis, which increases your gain on eventual sale. However, the benefit is timing: you receive the tax deduction now (immediate loss on the old component) rather than waiting years for the remaining depreciation to play out. The tax deferral benefit is real and significant, particularly when combined with higher current income that the deduction offsets.

Track Your Component Basis for the Partial Disposition Election

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Disclaimer

This article is for informational purposes and does not constitute tax, legal, or financial advice. Tax rules vary based on your specific situation, filing status, entity structure, and jurisdiction. Always consult a qualified CPA or tax professional for guidance on your specific tax situation. IRS rules and thresholds are subject to change—verify current requirements at irs.gov before filing.