Have a tax client who reroofed their business property. Would love to depreciate faster than 39 years. Don't see any requirements, as it really is not extending the life of the property - it is a repair.
Expense or depreciate - and depreciate for 39 years? or less?
There is case law on this that makes a good case for expensing. In general, the addition has to extend the life of the property (which it's not doing here as a building is generally meant to have a roof) or significantly change or improve the property (again, doesn't apply here). There are, however, cases that the courts have ruled that the cost to replace must be capitalized.
I don't have the citations on hand, however. Please consult a tax professional, or confirm through research, as this is likely material to the tax return.
+===== EDIT ======== Tax Court case that clarifies all comments listed here (and mine above). 94 TC 337. Deduction for repairs, capitalize and depreciate for replacement even if replacement occurs in a process spanning more than 1 year.
First you have to answer the question - WHY did they re-roof the property? Once you can answer that you'll have your answer about whether you need to look further at whether to capitalize or deduct.
IF the work was done because the roof wasn't doing it jobs anymore - it leaked or a tree fell through it - its a deductible expense and does not get capitalized and depreciated.
IF there was nothing wrong with the roof when the work was done then it gets capitalized and depreciated.
Also, you need to look to the nature and extent of the re-roofing. If the old roof was asphalt paper, and that is all the code requires, and the new roof is imported Spanish terracotta tile, then you have to allocate the cost between the cost to replace the asphalt paper, which gets expensed, and the costs associated with the upgrade, which get capitalized and depreciated.
answered 12 Feb '10, 23:07
I believe a roof is a building improvement and has to be depreciated as such.
answered 13 Feb '10, 03:35
As a former IRS Tax Auditor I can assure you, if audited, it would not likely be accepted as a repair. If the roof failed or wore out how is replacing it not extending the life of the building? Leaving a bad roof on it would eventually destroy much more of the building.
answered 13 Feb '10, 23:33
Take a look at the new repair regulations; should also research whether the roof is or isn't a unit of property. Repairing the roof doesn't necessarily extend the life of the building. Repairing the roof merely brings it back to its normal operating condition. The IRS auditor is the typical response. You really need to research it and document your facts/circumstances. At first blush, appears capitalizable under S263. Its a hot area for the Big 4, and either tier 1 or 2 issue.
answered 16 Feb '10, 05:00
Depreciate....roofing in an owned property is extending the life of the property....if you are having roof repairs, does not have to depreciate.
Re-roofing of a building is not an expense...it is depreciable and is added to the basis of the building
answered 12 Feb '10, 23:00
In my opinion you need to depreciate this roofing job.
There are several issues that can affect if something is depreciated or expensed. Even worse is the fact that special rules apply to rental property. For example no Section 179 depreciation is allowed even on items like stoves, refrigerators, and other items used in rental property. But in this case it's most important to look at does this work extend the life of the building. Of course it does! And is the roofs useful life more than one year. Again of course it is! And before you can consider it a repair (treated as an expense) rather than a replacement (depreciated over time) you need to remember those facts. A repair is something that brings an item back to functional service, like fixing a hole in the floor, not replacing the whole floor. Or repairing a carburetor on a truck, not rebuilding the engine. So if your client had repaired the roof by patching some leaky areas (even if they had been extensive) then it would be correct to expense the cost. But he replaced the WHOLE roof. With just a moments though you can see the difference. So anytime you do any "repair" that is for more than half of an item's cost or area you are going to have a very hard time winning the argument that it's an expense item.
To quote from the Quick Finders Tax Guide (section 10 page 18)
**In general depreciation rules apply to ANY assets that have a useful life of over one year. There is no minimum dollar amount in the code that provides an exception to this rule. A screwdriver that cost $10 must be depreciated if its useful life is more that one year.
The only exceptions to this are:
Property expensed under Section 179 (Not allowed for rental real estate)
Property with useful life of one year or less, such as small hand tools that generally get lost or broken within a year. (Certainly not a roof)
Property expensed under a minimum expense policy. (Not allowed for items not covered under special rules of accounting.)**
So trust me don't expense this roof unless you just feel luck because if you get audited you will lose and lose big on this issue. Frank Woodman Jr
answered 06 Apr '10, 08:59