Tax professionals and their customers often face a difficult decision when it comes to roof repairs and replacement. In most cases, it is best to spend the money in the same year that it is incurred. However, the recent release of the Tangible Property Regulations by the IRS has made this analysis more complex. Replacing an entire roof is considered an improvement, which must be capitalized and depreciated.
Repairs, on the other hand, are considered maintenance. This includes fixing roof leaks or replacing shingles. Unfortunately, most insurance companies require you to pay a deductible every time the roof is repaired, usually every ten years. If there has been damage to a part of the roof that needs to be repaired, this would be considered a repair.
It is also important to remember that insurance companies will only cover the cost of repairing the roof without any additional improvements or upgrades. For financial statements, insurance income net of the book value of the ceiling would be considered a gain for finance and the cost of the ceiling would be a new asset that would depreciate. If the average life of a roof is 25 years, it may be best to get a new roof in this case.
