The topic of roof repairs and replacement presents a long-standing dilemma for tax professionals and their customers. In general, it is expected that such repair or replacement costs can be spent in the year 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. Replacing an entire roof with a new one is considered an improvement, and must be capitalized and depreciated.
On the other hand, a repair is considered maintenance, such as repairing roof leaks or replacing shingles. If so, the cost of the roof work is capitalized as restoration. The difference between a repair and an improvement is that a repair is not a permanent solution to fix your roofing problems. Not only can you spend your entire roof in the year you buy it, but you can also spend more than the cost of the roof.
However, if it was a million-dollar roof (which is possible in very large buildings, or with unusual roofing systems, such as green roofs), you can cancel that total amount. Changes to Section 179 of the IRS tax code now allow companies to spend a completely new roof in the year it was purchased. However, if the average life of a roof is 25 years, it's best to get a new roof in this case. Unfortunately, most insurance companies require you to pay a deductible every time the roof is repaired, every ten years.
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. 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. If your company has purchased a new roof in the past, you may have had to capitalize the cost of the roof for several years, perhaps even 39 years. Another important thing to remember is that most insurance companies will only cover the cost of repairing the roof without any additional improvements or upgrades.