The Partial Asset Disposition (PAD) Deduction

An election allowing you to write off the undepreciated basis of a replaced or removed component of a MACRS asset, like a roof or HVAC unit.

File the election on your original return (including extensions) for the year of disposition; you can’t elect afterward without special IRS relief.

MACRS property placed in service after 1986—buildings and their components (roofs, plumbing, electrical, finishes).

Report the loss on Form 4797, include “Partial Disposition Election” in the description, and file by the return deadline.

Your return due date plus extensions for the tax year when the portion is disposed (e.g., April 15 or March 15 for corporations).

Use a consistent, reasonable method: Producer Price Index adjustment, pro-rata allocation, or a cost segregation study.

Yes—once you elect, you may deduct demolition/removal costs (repairs immediately; improvements depreciated).

• Must retain ≥75% of walls/framework
• Disposed component must match replacement in type and location
• Fully depreciated items yield no loss

They check that a disposition occurred, proper component identification, correct basis calculation, and timely election.

Keep depreciation schedules, project docs, invoices, disposal evidence, calculation method details, and any Form 3115 filings.