Replacing a substantial part of any major component of a building meets the definition of capital improvement. A roofing system is considered a major component because it plays a critical function for the operation of the entire building. If so, the cost of the roof work is capitalized as restoration. Replacing an entire roof with a new one is considered an improvement.
The improvement must be capitalized and depreciated. The difference is that a repair is considered maintenance, such as repairing roof leaks or replacing shingles. The topic of roof repairs and replacement presents a long-standing dilemma for tax professionals and our customers. In general (and most often optimally), it is expected that such repair, or even replacement, costs can be spent in the year in which they are incurred.
But the analysis needed to determine what needs to be done isn't that simple, especially with the recent issuance of the Tangible Property Regulations by the IRS. In most cases, a new ceiling will fall under a capital improvement. However, the tax treatment for a new roof is different from that for a minor roof repair. This is because the IRS treats a new ceiling as an asset on its own, meaning that it is prone to deterioration or obsolescence.
Unfortunately, you can't deduct the cost of a new roof. Installing a new roof is considered a home improvement and home improvement costs are not deductible. These load-bearing roof elements are less likely to be replaced unless catastrophic failure occurs, such as a tornado or fire, or prolonged neglect of the roof covering. However, if the average life of a roof is 25 years, you'd better get a new roof in this case.
In addition, the depreciation expense of the new roof should be treated separately from the depreciation expense of the building itself, since the new roof is recognized as an asset independent of the existing building. If you have had a roof leak, for example, it would be considered a repair, since there has been damage to a part of the roof that needs to be repaired. The person who made my quote took the time to look at the roof and found that it could save me a lot of money because my roof was already covered, other companies simply assumed it wasn't and quoted more than 10,000. If so, the extension part of the roof is capitalized and, according to the facts, possibly the entire roof system.
If you need a roofing company this spring, turn to State Roofing for your home improvement needs. This includes repairing a pre-existing defect before the property was purchased, such as hiring a roofing contractor to repair a damaged roof.