The US Internal Revenue Service (IRS) has updated its practice units on 16 January 2025 to better identify and examine taxpayers who elect partial dispositions of buildings.
Identifying a Taxpayer Electing a Partial Disposition of a Building
This Practice Unit updates the 10/29/19 Practice Unit with the same title. Formatting changes were made to improve the content presentation. No substantive changes were made to the technical content.
This Practice Unit concentrates on the five steps involved in examining a taxpayer who has elected a partial disposition of a building or its structural components. This Process Unit will assist you, the examiner, in verifying a taxpayer’s compliance with the IRC 168 disposition regulations.
To comply with the disposition regulations, a taxpayer must be able to substantiate that it:
- Disposed of a portion of a building or its structural components,
- Identified the disposed portion of a building or its structural components,
- Identified which asset was partially disposed of and its placed-in-service (PIS) date,
- Determined the adjusted basis of the disposed portion and
- Reduced the adjusted basis of the asset by the disposed portion.
These are the five steps outlined in this Practice Unit and illustrate the importance of taxpayer records in applying the IRC 168 disposition regulations. The disposition regulations do not change a taxpayer’s record-keeping requirement.
Under Treas. Reg. 1.168(i)-7(d), taxpayers must continue to maintain records as required in Treas. Reg. 1.167(a)-7(c).
Taxpayers may make an annual partial disposition election to recognise the disposition of a portion of a building, including its structural components, in tax years beginning on or after 1 January 2014.
Any taxpayer having a depreciable interest in a building or its structural components may make the election. Electing a partial disposition of a building will generally result in a loss recognised on the tax return in the year of disposition.
Taxpayers are required to recognise a partial disposition in the following instances:
- A casualty event under IRC 165;
- A disposition portion of an asset for which gain is not recognised, in whole or in part, under IRC 1031 or 1033;
- Transfers of a portion of an asset in a “step-in-the-shoes” transaction in IRC 168(i)(7)(B); or
- Sales of a portion of an asset.
