Discussion:Recovery Period for Roof Replacement

Reroofing is almost never capital in nature, unless the roof is upgraded.

Unless the roof is an "upgrade" it is most likely a repair.

Most buildings have a life far in excess of the waterproofing material applied to the structure components of the roof. Some waterproofing materials, such as, the red clay tiles do have a very long life. While other materials as used in a buildup roof will need to maintained, or replace many times during the life of the building. The maintenance or replacement of the waterproofing materials in a buildup roof should be classified as a repair. This repair classification is because 1. it does extend design life of the building, is normal and necessary, does not add value to building, etc. A note on does not add value to the building issue, is that this issue falls under the general nature of how the current and deferred maintenance items effects the value of a building. Say a building is in need of painting, the FMV of the building is determined as if the building did not need painting. Generally, such the FMV price is then reduced for the cost of the painting. Unless, painting is part of the original construction, or part of renovations, painting is always a maintenance item. I point this out because the the cost of needed maintenance or repairs can effect the FMV of building, but the need for such maintenance or repairs should be cited as added value to the building, unless, the maintenance and repairs raise to the level such that they would be classified as a renovation.

Not enough facts to make an actual determination, beyond, if it is not a maintenance or repair item then class life is 39 years for the business portion of the roof.

Frequently Asked Tax Questions And Answers Keyword: Apartment Building

11.1 Sale or Trade of Business, Depreciation, Rentals: Depreciation & Recapture

We have incurred substantial repairs to our rental property: new roof, gutters, windows, furnace, and outside paint. What are the IRS rules concerning depreciation?

Replacements of roof, rain gutters, windows, and furnace on a residential rental property are capital improvements to the structure because they materially add to the value of your property or substantially prolong its life. The items would be in the same class of property as the rental property to which they are attached. Since the property is residential rental property, the items are generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention.

Repairs, such as repainting the residential rental property, are currently deductible expenses. A repair keeps your property in good operating condition. It does not materially add to the value of your property or substantially prolong its life. Repainting your property inside or out, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs. If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement. In that case, you should capitalize and depreciate the repair costs as the same class of property that you have restored or remodeled as discussed above. For more information, refer to Publication 527, Residential Rental Property, and Publication 946, How to Depreciate Property.

The Tax Court held that the cost of repairing the roof is deductible. She did not intend to prolong the life of the property, increase its value, or make it adaptable to another use.

Expenditures incurred as part of a general plan of reconditioning, renovating, improving, or altering business property are capital expenditures, even though certain portions of the work, considered alone, might be classified as repairs.

Regs. Sec. 1.162-4. Repairs.

The cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life, but keep it in an ordinarily efficient operating condition, may be deducted as an expense, provided the cost of acquisition or production or the gain or loss basis of the taxpayer's plant, equipment, or other property, as the case may be, is not increased by the amount of such expenditures. Repairs in the nature of replacements, to the extent that they arrest deterioration and appreciably prolong the life of the property, shall either be capitalized and depreciated in accordance with section 167 or charged against the depreciation reserve if such an account is kept.

I agree with Riley that the current rules say that a complete replacement of the roof is of a capital nature and maybe not be a repair. On the other hand, are not most roof repairs to prevent leaks, and therefore, maybe be a maintenance or repair item?

TITLE 26, Subtitle A, CHAPTER 1, Subchapter B, PART IX, Sec. 263. STATUTE

   (a)   General rule
   No deduction shall be allowed for -

       (1)   Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. This paragraph shall not apply to - 

If the Roof is a "Betterment" is must be Capitalized - the factual issue is what the replacement of the Roof is intended to accomplish.

"The building was rented to Environmental Care Inc. (Environmental). One of Environmental’s jobs was to provide all the Christmas decorations for the World Trade Center in San Francisco, California. During the year in issue, the roof leaked, damaging Environmental’s materials. Environmental’s personnel complained to petitioner and even threatened legal action.

"Petitioner hired Armstrong Roofing (Armstrong) to stop the leaks and install a foam roofing system. The acting roof superintendent (superintendent) examined the roof and found it “basically * * * intact” except for one location “where water was coming through, almost like a river.”

"Twenty eight sheets of plywood on the roof were replaced due to dry rot. The superintendent explained that it was not necessary to remove the tar and gravel from the roof. However, Armstrong’s company policy was to remove all tar and gravel down to the plywood roof, spray the primer on, and top it off with a spray polyurethane foam coating. There were no structural changes made to the roof. The entire roof was sprayed to protect Armstrong against any potential liability in the future.

"The leaks were located under the rooftop air conditioning unit. In order to gain access to that area and stop the leaks, petitioner’s contractors had to move and replace the air conditioner with a crane, place supports under the air conditioner when it was replaced, disconnect and reconnect the gas lines, and install new electrical conduits."

The Court cited Oberman Manufacturing 47 TC 471 but made this statement in finding the 50K that Northen spent a repair: "there was no replacement or substitution of the roof." So here I would note that the word 'replacement' was considered a differentiation.

The OP does not say the roof was leaking or that the dire consequences faced by Northen would occur, so here it would seem capitlization is in order.

I am fully aware of the distinction between case law and publications - it was fully covered on the CPA Examination - one you never took.

The question in Northen, as stated in the published case, was "this Court must decide is whether petitioner Shirley Cox (petitioner) is entitled to deduct the cost of removing and replacing the roof-covering material and related expenses on her commercial building." I underlined the "R" word....whether replacement and replacing are the same is for the reader to decide, and as with most matters, it can be a case of facts and circumstances of the particular matter. As I noted before, the Court went to lengths to note that it considers a replacement a capital item, but sometimes, like here, a replacement is not a replacement but rather the only way to repair the roof.

Trying to read between the lines, I would think that the OP's client's house did not have a roof that leaked and threatened to force the client to sue himself, but then again, our roof leaked pretty badly for over a year and we had it replaced. Of course, the house is not used for business.

Do you wait for the tires on your car to completely wear out?

No, generally, tires are replaced before the tires completely wear out.

Actually, I still think the whole thing comes down to the definition of a "roof replacement." As previously posted, when most people say, "I've got to replace my roof," they actually mean, "I've got to reshingle my roof."

Reshingling a roof certainly seems the equivalent of repainting a house. If there is a distinction between these two acts of maintenance, I still haven't heard it.

During a roof replacement, when I stand on the top floor of my house and look up, I would see blue sky. During a reshingling, when I stand on the top floor of my house and look up, I see boards but no blue sky.

I've now come to conclude, at this point anyway, that reshingling a roof (which is a roof's equivalent to repainting outer walls) is a repair. Replacing a roof remains a capitalized cost. So far, I've read nothing that pokes a hole in that outcome. "It has always been thus" just doesn't cut it.

This forum is to post our knowledge and assist others if one so desires and not for lashing out when one has a bad day.

JR1 has invested allot of time and effort helping others here and deserves your respect as a true professional.

I have to agree with Michaelstar and others: that was a cheap shot against JR1 who is highly respected here.

You are new here and I think you overlooked the "no personal attacks" part in the Code of Conduct, so I am sure all here are willing to say let bygones be bygones. I am sure Jeff, being the good man I know he is has moved on.

I am sure a man of your experience is wise enough to know that you made a mistake and learned from it. I've done this myself at this forum and learned a valuable lesson.

Best wishes,

Tom

Would all of these renovations/repairs be expensed? Since the coating on the roof extends the life would it be considered a capital expense?

Thanks

My comment is that this, "Since he was doing the roof, painting and other repairs he decided to go ahead and seal coat the parking lot and re-stripe it.", does not appear to extensive enough to require capitalization.

I guess your client had a lot of "deferred maintenance" to catch-up.

Discussion:Roof_replacements