This is a common question we receive from our business and rental real estate clients and the answer is always, “Well, it depends.” Roofing costs must be capitalized if they are considered a capital improvement which is defined as an amount paid after a property is placed in service that results in a betterment, restoration or adaptation. Below, we take a practical look at each of these categories in relation to roofing repairs to determine which costs may qualify for expensing.
A betterment may occur under the following circumstances, requiring the roofing costs to be capitalized:
The following situations would generally not be considered a betterment, thus making the roofing costs eligible for expensing:
Improved roof materials are used because comparable materials are no longer available or the prior roof materials are no longer up to current industry standards.
The following examples illustrate a possible restoration, which would be subject to capitalization:
The following circumstance illustrates what may not be considered a restoration and thus eligible for expensing:
Adaption may occur when the roof costs are part of an additional capital improvement project such as the following:
Roofing costs incurred in these types of situations would not be eligible for expensing.
Determining whether a roofing project should be treated as a current year repair expense or a capital improvement requires careful analysis. In many cases, the costs can be expensed. If you have questions about the tax treatment of roofing costs, please don’t hesitate to contact one of our offices.