Remodeled your rental? Write off what came out.

The remodel, in numbers

Each remodeled area of the Salt House and the basis written off for what came out of it. Figures are read from the published study.

• Kitchen and dining$63,855
• Bathroom$30,004
• Rear yard, deck and outdoor shower$14,752
• Guest / kids bedroom$13,650
• Primary bedroom$13,211
• Living room$11,836
• Enclosed sunroom / office$7,008
• Property-Wide$6,520

On Timber Ridge at Sea Ranch, a second sample study, the remodel wrote off $268,845 of removed parts. Read that study

How a remodel becomes a deduction

1. 01

   Price the house as it was

   The study rebuilds the house before the remodel and prices every part in its class: 5-year personal property, 15-year improvements, and the building shell. That gives each part its own basis.

2. 02

   Find what came out

   Before and after photos, receipts, and permits show which parts the remodel removed. Each removed part is matched to its line in the original house, room by room.

3. 03

   Write off the remaining basis

   The basis left in each removed part, after the depreciation it already took, is a loss in the year it came out. The election rides on that year's return, filed on time.

4. 04

   Classify what went in

   The new kitchen is priced part by part too. Appliances and cabinets that qualify go to 5-year, interior improvements can be 15-year qualified improvement property, and each can take bonus depreciation.

From your photos to the model

Owners rarely keep a list of everything a remodel changed. Your before and after photos are enough: we find what changed in each room and price it.

The kitchen remodel at Timber Ridge, a sample study.

Common questions

Can I write off the old kitchen when I remodel a rental?

When a remodel removes part of a rental (an old kitchen, a bathroom, a deck), the basis still sitting in that part can come off the books as a loss in the year it is removed. This is a partial disposition under Treas. Reg. §1.168(i)-8. Without it, the old kitchen keeps depreciating for decades beside the new one. The catch is that the removed part needs its own basis, and a house bought as one 27.5- or 39-year building has none. Cost segregation supplies it: it prices each part of the house, so the parts a remodel takes out can be written off and the parts it puts in can be placed in their own, shorter classes.

What is a partial disposition?

A partial disposition is the election in Treas. Reg. §1.168(i)-8(d) to treat a removed portion of a building, such as a roof, a kitchen, or a bathroom, as disposed of. You recognize a loss for its remaining basis in the year it is removed, instead of continuing to depreciate a part that no longer exists.

Do I need a cost segregation study to take a partial disposition?

You need a supportable basis for the part you removed. The regulations allow any reasonable method, and a cost segregation study is the most defensible one because it prices the specific parts of your house from its own records. Without a study, the removed kitchen is buried inside one building number with no cost of its own.

When do I have to make the election?

On the return for the year the part was removed, filed on time including extensions. That is why it pays to have the study done for the remodel year. Your CPA confirms the timing for your facts.

What if I remodeled before I started renting the house?

Work done before the property was placed in service is not a disposition: it becomes part of the starting basis instead. The study still prices it part by part, so the new components can sit in shorter classes from day one.

Does a partial disposition increase recapture when I sell?

It removes basis that would otherwise have kept depreciating, so it does not add depreciation for those parts going forward. Recapture on sale depends on the depreciation actually taken. Your CPA weighs both before you rely on the figure.

This is not tax advice. A partial disposition is an election your CPA makes on the return for the remodel year; the study supplies the basis behind it.