Partial Disposition on Property NOT In-Service, Yet???

[Jack Judge]

Here’s the scoop…I have a CPA, but he didn't provide me the answer I wanted and/or think is logical when it comes to the topic of claiming "Partial Disposition", so I wanted to put it out to y'all.  I'm a business owner in Massachusetts currently leasing space for my business to function.  I acquired a 1-story office building early-2018 (that was occupancy-ready at the time of purchase) and am currently in the process of selectively demolishing 25% (non-structural) of the interior to make way for $700K of renovations (still to be used as an office building).  All demolition will be completed by end of 2018, but the renovation project won’t be completed until mid-2019 (official in-service date).  My intention was to hire a 3rd-Party Cost Seg Firm to perform a ‘Partial Disposition Study’ to claim the unadjusted basis still left in the 25% of demolished assets in 2018 (estimated to be ~$340K).  BUT, my CPA is telling me that in order to claim partial disposition deductions on my newly acquired office building, I needed to place it "in-service" PRIOR to disposing of any assets because per the Partial Disposition rules (listed within the final Tangible Property Repair Reg's released in 2014), assets must be used in a trade or business or rental activity to be claimed.  If those are the rules, then those are the rules and I will concede...however, I would have to imagine that a good majority of people perform their renovations directly after acquisition to take advantage of the building being empty and not having to deal with construction in a live/working environment...logical, right...so because I didn't place my newly acquired building in-service prior to demolition/renovations I don't get to claim ~$340K of Partial Disposition deductions???  This is asinine...so now to "play the game", I should have used my newly acquired office building for my business's "quasi-storage facility" or better yet moved only "my office" into the newly acquired building just to claim it's been placed IN-SERVICE?!  There's got to be a way to claim these partial dispositions even though my building has not yet been placed in-service...help???