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Replacing a Roof? You May Be Able to Write Off the Old One Immediately
When real estate owners replace a major structural component—such as a roof, foundation, or load-bearing walls—the tax impact is often misunderstood. Many continue depreciating the original asset even though it no longer exists, creating what’s commonly referred to as a “ghost asset.”
Fortunately, the tax code provides a solution.
What Is a Partial Asset Retirement?
Under Treasury Regulation 1.168(i)-8, taxpayers may elect to treat a portion of a building as retired when a substantial structural component is replaced. This allows the remaining tax basis of the retired component to be deducted immediately, rather than depreciated over decades.
How It Works in Practice
Let’s say you purchased a building for $1,000,000 and later replaced the roof at a cost of $50,000.
Because the original roof was never separately valued at acquisition, the IRS allows taxpayers to:
Use the Producer Price Index (PPI)
Discount the replacement cost back to the acquisition date
Estimate the original roof’s value
Deduct that amount as a partial retirement
The newly installed roof is then placed in service and depreciated over 27.5 or 39 years, depending on property type.
Why Timing Matters
A partial retirement is an election, not an accounting method change. That means:
It must be claimed on the tax return for the year the replacement occurs
It cannot be fixed years later using Form 3115
In limited cases, recent years may be amended — but opportunities expire quickly
This differs significantly from cost segregation studies, which can often be addressed retroactively through accounting method changes.
Beyond Roofs
While roofs are the most common example, partial retirements can also apply to:
Structural walls
Foundations
Major building systems replaced during renovations
Each situation requires careful analysis and proper documentation.
Final Thoughts
If you’re planning a substantial renovation or recently completed one, understanding partial asset retirements before filing your return can prevent missed deductions and compliance issues.
If you’d like guidance on how this applies to your property or renovation plans, the team at Advise RE is happy to walk you through the potential tax outcomes.
