I have an opportunity to buy a deal, but the house needs a new roof ASAP. We are doing a lease-option, so I won't actually be purchasing the property until 1 year from now... just sub-leasing. I have asked the owner if he would consider replacing the roof (which is long overdue) to protect the investment over the next year until I buy. Can someone help me work through the options here? Is replacing the roof a deduction for him...or an expendable item that depreciates for me... or both? What incentives can I give him to replace the roof now?
It's deductible (or a "write off") for whoever buys it, but you still have to put up the money for it. On a balance sheet, pretty much everything in the "expense" column is deductible from your income. And a roof would fall in this catagory. I'm sure a tax expert can tell you for sure, but I think on a new roof, it won't depreciate over years in terms of tax, but you would get the full tax benefit the year you buy it.
So if your annual taxable income is $75,000 and you purchase a new roof for your rental for $10,000, then your annual taxable incombe is $65k, not $75k. Someone correct me if I'm wrong......
Typically you’re only allowed to directly expense 2500 dollars and then anything after that is capex and is depreciated over 5 years.
If our roof cost 10k, you deduct 2500 from this year tax return and then whatever 7500/5 is what you deduct from each of the next years.
No tax advice given
Have you and the seller agreed on a price that you would purchase the property within a year from now?
If you agreed upon a price - there may be little to incentivize the seller to repair the roof.
Has a contractor come in and given an estimate on how much it will cost?
The person who pays for the roof will ultimately get the deduction/depreciation write off.
Replacing a new roof sounds more like it needs to be capitalized.
it can be currently expensed if the cost was below $2500.
The above responder is slightly incorrect. if the cost is $10,000 - you would not be able to expense $2500 of it. the full amount would be capitalized.
Furthermore - you would need to look up the years to write off the property. Roofs are usually not depreciated over 5 years as suggested by the poster above.
Talk to your accountant but if you make $75k you cannot deduct the $10k and it shows you at $65k.
A roof is a capex which typically has a 27.5 year depreciation - so 10,000 divided by 27.5 is what you deduct as part of the overall analysis which includes rental income etc. so to answer your question putting a new roof on a property really does not move the needle for you - also if you do not own the property and put the roof on it heck with your accountant if you can depreciate it at all as it may be seen as part of the acquisition cost since it was done when you did not own the property
A new roof is ABSOLUTELY a depreciable item.
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