A client story · Alex, the disposition

Alex tore out half the house. That $335K can never be recaptured.

Plain depreciation comes back at sale: the IRS recaptures what you wrote off. A disposition does not. When Alex remodeled his Sea Ranch rental, he removed 50% of the building, wrote off its remaining $335,000 of basis as an ordinary loss, and that deduction left the building for good. It is not in his basis anymore, so there is nothing to recapture later. Then he depreciated the $388K he put back in.

Alex
Alex
Timber Ridge at Sea Ranch · ULV-2025-0619
Property
$837,500
Capital deployed
$548K
Year-one deduction
$512K
Tax cut at 37%
$189K
Federal refund
$110K

Case-study figures, locked. The panel below explores the disposition mechanic, starting from Alex’s actual remodel.

The property & the remodel

Starts on Alex’s case.

Drag either bar — or use the sliders

1 · What he boughtBuilding basis $670,000
Land
Building
2 · The remodel: tear out & disposeDisposed $335,000
Kept
Disposed
The disposed slice is written off as an ordinary loss this year and permanently removed from basis. At sale there is nothing left to recapture on it.

If he sells for what he paid

Sell at the $837,500 acquisition price: no appreciation, so the only exit cost is depreciation recapture, and the disposition is exempt from it.

Appreciation tax
$0
Sold at cost. No gain above basis.
Recapture on the disposed half
$0
The $335K is gone for good. Never recaptured.
Of his deductions, shielded
65%
The disposition is 65% of the $512K year-one deduction.
Never recaptured · the disposition
$335,000
50% of the building, removed and written off. It can never come back as recapture.
Recapture exposure that remains
$177,000
The retained accelerated depreciation. Recaptured at sale, to the extent of gain.
Reinvested · depreciated again
$388,000
New short-life basis on what he put back in, bonus-eligible.
Timing is the whole game. Buy, run the cost segregation study, and remodel in the same tax year, and three deductions stack at once: cost seg on the purchase, the disposition loss on what you remove, and bonus depreciation on what you install. Spread it across years and you lose the stack.

Educational illustration, not tax advice. Simplified model anchored to a real client case. Building basis is home value less land. The disposition is the remaining basis of the components removed in the remodel ($335,000, roughly 50% of the $670,000 building basis), taken as a one-time ordinary loss under the partial-asset-disposition rules and not subject to later recapture. The remaining recapture exposure ($177,000) is the rest of the $512,000 year-one deduction; at a flat sale price recapture applies only to the extent of gain. Selling at the acquisition price assumes no appreciation. Cost-seg personal property recaptures at ordinary rates; unrecaptured section 1250 gain is capped at 25%. A partial asset disposition is an election with documentation requirements. Confirm exact figures and eligibility with your CPA.