Three-Family Renovation Sample Study
A three family major renovation classified line by line: what is expensed, what is capitalized, a retired roof covering, and a catch up.
Illustrative sample
Dollar figures shown are illustrative and come from the sample's own data. Estimates, never guarantees; results depend on your specific tax situation.
The Project and the Spend
Use
Residential Rental Renovation
Renovation began
August 2025
Renovation finished
December 2025
Total spend
$65,913
Expensed by the study
$2,518
Capitalized by the study
$63,395
4 lines are expensed in the year paid, each under a treatment the study names; the PDF gives the authority, and your CPA confirms.
12 lines are capitalized and classified below.
How the Capitalized Cost Was Classified
| Class | Lines | Amount | Share of basis |
|---|---|---|---|
| 5 year property | 3 | $9,128 | 14% |
| Building on its 27.5 year life | 9 | $54,267 | 86% |
Every dollar of the $63,395 basis is allocated.
The Retired Component
Retired in the project: original roof covering.
Disposition loss in the study: $43,617
First Year Figures
First year depreciation in the study: $9,210
Estimated first year tax savings at 32%: $2,947
| Position | Conservative | Middle of the Road | Aggressive |
|---|---|---|---|
| First year depreciation | $5,428 | $9,210 | $11,101 |
| Estimated tax savings | $1,737 | $2,947 | $3,552 |
These savings assume the full deduction can be used this year. Whether it can depends on your tax situation, including the passive activity rules, and your CPA decides.
The Catch Up
Placed in service in 2025.
Year of change 2026.
Catch up deduction in the year of change: $9,114
- A negative section 481(a) adjustment, which lowers taxable income, is taken in full in the year of change. A positive adjustment is generally spread over four tax years. The adjustment for a depreciation change equals the difference between depreciation actually taken and depreciation allowable for all years before the year of change. Source: Rev. Proc. 2015-13, 2015-5 I.R.B. 419, section 7.03(1); Rev. Proc. 2025-23 section 6.01(5); IRS Publication 946 (2025), chapter 1
- The automatic change from an impermissible to a permissible method of accounting for depreciation is in section 6.01 of Rev. Proc. 2025-23, and its designated automatic accounting method change number is 7. It applies to property the taxpayer owns at the beginning of the year of change and for which the impermissible method was used in at least two tax years immediately before the year of change, with a special rule for property placed in service in the immediately preceding year. Section 6.01 also lists property it does not cover, and property disposed of before the year of change is handled in section 6.07. Source: Rev. Proc. 2025-23, 2025-24 I.R.B. 1476, sections 6.01(1), 6.01(9) and 6.07
- For an automatic change the original Form 3115 is attached to the timely filed federal income tax return (including extensions) for the year of change, and a signed copy is filed with the IRS no later than the date the original is filed. The IRS does not send acknowledgements for automatic change requests. The current Form 3115 instructions are the December 2022 revision. Source: Instructions for Form 3115 (Rev. 12/2022), When and Where To File; Rev. Proc. 2015-13 section 6.03(1)
- Generally, a taxpayer adopts a depreciation method by using a permissible method on the first return or by using the same impermissible method on two or more consecutively filed returns. Once a method is adopted, the IRS guide says it cannot be changed by amended return unless specific guidance allows an exemption. Source: IRS Publication 946 (2025), chapter 1, Adoption of accounting method defined; IRS Publication 5653 (Rev. 2-2025), chapter 6, part B.6, paragraph (2)
What Is in the PDF
Every part of this sample study PDF, in order:
- Cover
- Executive Summary
- Renovation Scope
- Capitalize vs. Expense Analysis
- Classification Schedule
- Partial Disposition Schedule
- Depreciation Benefit
- Scenario Comparison
- P&L Reconciliation
- Evidence Exhibit
- Missing Evidence
- Representative Photography
- Methodology & Authorities
- Acceptance
- Contact
Start With Your Own Property
The wizard asks the questions for your property and routes it to the right lane.