THE HIDDEN TAX DEDUCTION MOST PROPERTY OWNERS MISS: PARTIAL ASSET DISPOSITION

If you’ve replaced a roof, remodeled a space, or upgraded your HVAC system — you might be sitting on a valuable tax deduction without even realizing it.

It’s called a partial asset disposition (PAD) — and it can put thousands of dollars back in your pocket.

What Is a Partial Asset Disposition?

When you improve a property, you typically:

• Capitalize the cost of the new item (e.g., new HVAC)

• Continue depreciating the old item… even though it’s gone!

That’s a waste of depreciation and a missed tax deduction.

Partial asset disposition (PAD) allows you to write off the remaining value of the replaced portion of the building in the year you dispose of it.

Example: A Roof Replacement

• Original roof cost: $80,000

• You replace it after 10 years

• Accumulated depreciation: $30,000

• Remaining basis: $50,000

Under PAD, you can deduct the $50,000 in the year of the replacement — instead of waiting 30 more years to depreciate something that no longer exists.

Why Timing Matters

Here’s the catch:
You must claim PAD in the year the asset is disposed (i.e., when you physically remove or demolish it).

If you forget to make the election or don’t identify the write-off in time, the opportunity is lost permanently.

What Qualifies?

PAD applies when you:

• Replace or dispose of a component of a building (e.g., roof, HVAC, windows, walls)

• Remove and replace part of a structural system (e.g., electrical, plumbing)

• Do renovations that involve tearing out original elements

• Partial Asset Disposition (PAD) applies only to depreciable property used for business or investment purposes—NOT to primary residences that aren’t generating income.

Common Mistake: Double Depreciation

If you add a new roof and continue depreciating the old one — that’s “phantom depreciation” and it can create issues down the line (especially on sale or audit). PAD corrects this and aligns your tax records with reality.

Real Estate Investors, Are You Missing This?

We often find PAD opportunities during tax return reviews for:

• Rental property owners

• Commercial landlords

• Medical and professional offices

• Businesses that renovate their buildings

Many tax preparers overlook PAD entirely — or assume the values are too small to bother with. But even a $15,000 write-off can be worth thousands in tax savings.

Think You Missed a PAD Opportunity?

Balanced Equity Consulting helps clients identify PAD-eligible improvements and file the proper elections — even if your prior preparer didn’t catch them.

Reach out if you:

• Replaced a major building component in the last tax year

• Are planning a renovation or improvement soon

• Want a second look at how improvements are being handled on your tax return

Get in Touch

Not sure if this applies to your situation?
Send us a summary of the improvements you’ve made recently — we’ll let you know if you’re leaving money on the table.