New roofs can be tax-deductible if they constitute what the IRS calls a capital improvement and are commercial or rental property. In other words, the roof replacement or repair should expand its lifespan and/or increase curb appeal.
Of course, there are other reasons to upgrade. An old roof poses many dangers, from a lack of warranty coverage to potential fire hazards, reduced weather protection, and leaks. You should plan to replace your roof at least every 20 years, sometimes twice or thrice, for rubber or metal roofs.
This guide to roofing replacements and tax deductions will elaborate on the answer above to point you in the right direction for your next roofing project.
Paramount Exteriors is your choice for roofing services, including roof replacement and repairs. We’ll install flat, metal, and asphalt roofs for your property. Our top-notch roof construction and repair services make us a trusted option across South Dakota.
Is New Roof Tax Deductible?
Tax deductions make the pain of paying Uncle Sam a less bitter pill to swallow. You probably had planned a roof replacement or repair before but hadn’t considered the potential for tax deductions before now.
So, are these roof improvements tax deductible?
It depends on whether it’s a commercial or residential property. Roof replacements or repairs for commercial or rental properties count as capital improvements, but the same changes to residential properties are home improvements.
Here’s more information to break it all down.
Roof reparations do nothing for your tax deduction if they don’t count as capital improvements.
Per law resource Dermody, Burke & Brown, property changes–roof replacements and otherwise–count as capital improvements if they:
- Change how you use the property, introducing a different or new usage
- Replace a substantial part of your property, including structural components
- Expand the property’s lifespan
- Help rebuild the property after it’s beyond its useful life
- Improve efficiency, productivity, and capacity
- Increase the property expansion or enlargement
- Improve a design issue or flaw
- Elevates the property’s strength and quality
Reviewing most of these criteria, a new roof for a commercial property checks many boxes.
For example, a roof repair changes how you use a property, as you can safely occupy it. The roof counts as a structural component and a major part of the property, and it can help a property be useful for longer. You can also rebuild a property with a new roof and improve design issues with a roof change.
Roofs can even make a building more energy-efficient depending on the type you select, and they can expand the size of a property, increasing capacity.
The category that home repairs like new asphalt shingles tend to fall under is home improvements.
A home improvement boosts your property’s adjusted cost basis, which refers to an asset’s net cost after applying and adjusting tax items.
For example, capital expenditures can increase the adjusted cost basis, such as a new roof for a permanent home or rental property. However, depreciation deductions reduce the value.
Since residential roofing projects qualify as home improvements, they’re not tax deductible.
Returning to commercial roofing projects that may be tax-deductible, ensure you’re focused on making wholesale changes rather than maintenance. Then, the improvement may fall under a repair expense.
A repair expense may count as routine maintenance to safeguard the property. The repairs would renovate the property, bringing it back to its prior condition. These changes also allow the property to continue operating.
How Much Can You Deduct from Your Taxes for Roof Replacement?
If you proceed with a roof replacement for this current tax year, hold onto all the paperwork and documentation for the project. That includes everything from receipts for the roofing materials to labor costs for the roof installation.
Next year, you can add the home improvement project to your taxes if your accountant or tax expert decides the roof meets the qualifications for a capital improvement.
If you spent $30,000 on a new roof, it’s not like you apply for a $30k tax credit for that year and receive the money all at once. That would be ideal for you, but it’s not how these tax credits work.
Instead, you must follow a depreciation schedule, receiving your tax credits gradually over several years.
For example, if you select a five-year depreciation model for a $30,000 roof, you can claim the full roof cost over those five years, receiving $6,000 per year.
If you enter a 10-year depreciation model, you’ll receive $3,000 per annum over 10 years for the roof.
The Importance of Working with a Tax Professional for Deductions on a Roof Replacement Project
Before proceeding with a new roof or roof repairs on which you hope to earn tax deductions, you should seek a qualified tax expert.
The tax service can determine whether your new roof is a home improvement or capital improvement. If you’re eligible for a tax deduction, the tax expert can help you determine how much.
If you decide to sell the commercial property with a new roof, you’ll also be glad for the tax assistance. Your roof is still tax deductible but requires accurate recordkeeping. However, you can’t claim deductions on losses related to selling the commercial or rental property.
A new roof is sometimes tax deductible if it qualifies as a capital improvement. While you can’t recoup the full value of the roof replacement immediately, you can expect yearly incremental payments over a depreciation schedule. Remember that you can consider Paramount Exteriors for your next roofing project. Our top-rated services in South Dakota and years of professional services ensure a job well done. Call today for a quote.