Recommendation: Check your depreciation schedules! · Multifamily Strategy Community

Recommendation: Check your depreciation schedules!

When you replace major components on a rental property (like a roof, HVAC, flooring), there’s a good chance the old component is still being depreciated even though it no longer exists. Under Partial Asset Disposition (Treas. Reg. 1.168(i)-8), you can elect to dispose of the old component and immediately deduct its remaining basis instead of continuing to depreciate it over 27.5 years though many CPAs don't elect to do so on your behalf. This causes many investors to miss this, leaving significant deductions “trapped” on their books, though missed elections can often be fixed using Form 3115 (accounting method change). If you’ve made capital improvements, it’s worth reviewing your depreciation schedule to see whether old components were properly removed.

1 comment