Context
There's an overloaded partially-K&T circuit in a small 100+ yr/old home that needs to be rewired. This circuit currently goes from basement panel to attic where it serves ceiling lights and drops down to a few wall outlets, with some splices of old 2-wire romex in some areas where renovations occurred. The rewiring of this circuit has two goals, which calls for separating it into more than one circuit: 1) remove load from this circuit so it is not handling so much, and 2) remove old knob and tube. This rewiring is being done with a local electrician but they are willing to pass some planning/work to us which they'll check before finalizing.
Because there's a substantial amount of work to do, the job naturally breaks into two major sections: rewiring the ceiling lights and switches coming down from the attic; and rewiring the wall outlets. For the wall outlets, it seems much easier (and two electricians have also suggested) to make runs along the basement ceiling and pop up into existing or new wall outlet from there. This also makes sense in terms of circuit loads, as the wall outlets should be separated from ceiling lights, and some of the wall outlets should really be on their own breaker (e.g. an outdoor outlet for a plug-in vehicle; an outlet in a bedroom which runs a space heater).
Question
My question is about what to do with the old wires coming down from the attic to wall outlets, after the wall outlets are switched over to new wiring coming up from the basement. Since the basement/wall circuits will probably be done before rewiring the attic, the old wires coming down will only be disconnected from one end (only temporarily if all goes roughly according to plan, as we'll cut off the attic wiring from its source once we rewire that).
Can the wires disconnected on one end just be terminated with wire nuts, and where can they safely reside (in the outlet box [tight fit, no?], or does a junction box with a flat cover need to be installed above the outlet box for storage of old wire terminuses)? Is it so unacceptacle to have wires terminate on one end like this, that we should find a way to do the attic rewiring first so we can disconnect these wall outlets from their source above before we cut them off at the outlets?
My question is similar but different from Is there a way to safely have exposed electrical wires? because in my case I will not ever reuse these disconnected wires (but will eventually disconnect them on both ends), and because I don't have a junction box these old wire disconnects can go in (yet – maybe I need to install one for that purpose). Cramming the terminated old wires in the outlet box that's containing the new wires doesn't seem like a good idea, but maybe that's a viable answer to my question too.
Best Answer
If you have enough space in your existing outlet boxes (including box fill calculations), you can cap the K&T wires and simply tuck them out of the way. I'd also recommend electrical tape to ensure that nothing accidentally moves or gets exposed, especially since this is a permanent disconnect.
If there isn't enough space, you can use a surface-mount junction box over the existing outlet box, or, as I've recently done, a raceway outlet box. You can cap and tape the K&T in the old, recessed outlet box and pull the new cables further forward into the surface mounted box. When you're all done, cleanup is as simple as removing the surface mounted box and tucking everything back into the recessed box.