Roof Replacement on Rental Property

Tax, SDIRAs & Cost Segregation
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Roof Replacement on Rental Property

Jane Dang
Fremont, CA · Member since 2017 · 65 posts · 17 votes

Hi,

My rental property's roof is 20+ years old.  Last year, a heavy rain and storm damaged it and I had to replace the entire roof which costed me $21K.  I understand that a roof repairs can be deducted as expense in the same year and a roof replacement needs to be depreciated over 27.5 years.  But how can we draw a line between repairs and replacement? Is it the repair is to fix the it and make it functioning, and replacement is to improve and add more value to it?  Will my case consider a repair or replacement? Appreciate if anyone have experience in this giving me your advice.

Thanks,

Jane

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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
2y
Quote from @Jason Malabute:

So, your roof replacement could indeed be a capital expenditure, but with the Section 179 deduction, you might be able to get a significant tax benefit right away.

@Jane Dang

The above was a pretty bad advice. Section 179 does not apply to real properties or improvements to real properties, such as roof replacement.

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  • Bill HamptonBusiness Member
    Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 977 votes
    2y

    @Jane Dang

    Generally, if the cost is $2500 or less it is considered a repair. Over $2500 is generally considered an improvement. 

    Your new roof will have to be depreciated over 27.5 years.

    Good luck.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    2y

    I'm guessing you didn't go through insurance, but you should simply let your insurance provider know that you got a new roof (don't need to say why other than it was older).  When I did that, I got a discount on my insurance.

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  • Jane Dang
    OP
    Fremont, CA · Member since 2017 · 65 posts · 17 votes
    2y

    @Bill Hampton thanks for your response.  Is that still true even the roof was torn and impacted the service? i.e property can't be rented with a leaking roof.  If I have to do depreciation, will it be 27.5 years for roof?  I have heard some people doing it for 7 years, which one is correct?  thanks.  Jane

    0Reply
  • Jane Dang
    OP
    Fremont, CA · Member since 2017 · 65 posts · 17 votes
    2y

    No, I didn't go through insurance.  I talked to the roof company and they said it is very complicated so I didn't.  I am in California.  

    0Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    2y

    @Jane Dang

    The short answer is: 27.5 yr depreciation.

    The long answer is: the line you are asking about, the one between repairs and improvements, does not exist. It's not a line, it's a confusing (even for tax professionals) web of connected and contradicting rules. If you want to have a glimpse, look here:
    https://www.thetaxadviser.com/newsletters/2017/jun/expensing...
    Warning: it will not give you a clear answer, only a headache.

    But returning to the short answer, in most cases and based on your description, it will be 27.5 yr depreciation. Never 7 years.

    4Reply
  • Randall Tannen
    CPA | Accepting New Clients · Member since 2022 · 62 posts · 36 votes
    2y
    Quote from @Jane Dang:

    My rental property's roof is 20+ years old.  Last year, a heavy rain and storm damaged it and I had to replace the entire roof which costed me $21K.  

    Since this is a replacement, consider taking a partial asset disposition on the old roof. Speak with a tax pro to determine if the roof is QIP eligble to be expensed, only applicable for non-residential real estate.
    0Reply
  • Jane Dang
    OP
    Fremont, CA · Member since 2017 · 65 posts · 17 votes
    2y

    @Michael Plaks, information on the link you sent was very helpful but as you said, I can't get a clear picture what I need to do on my tax. I need help from tax pro but I can't afford a lot.

    If anyone out there can help me figure out this piece with a small fee, please let me know.

    Thanks,

    Jane.

    0Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    2y
    Quote from @Jane Dang:

    If anyone out there can help me figure out this piece with a small fee, please let me know.

    It's free advice here. 27.5 yr depreciation
    3Reply
  • Jane Dang
    OP
    Fremont, CA · Member since 2017 · 65 posts · 17 votes
    2y

    @Michael Plaks based on the link you sent, it seems I can do some expense and some depreciation if I know how to categorize it correctly.  Depreciation 27.5 years is a safe solution but I wonder if a tax pro can help me doing it right and save me some money? or you said my hypothesis is wrong, it has to be depreciate 27.5 years and no other choice.  Please advise. 

    0Reply
  • Jane Dang
    OP
    Fremont, CA · Member since 2017 · 65 posts · 17 votes
    2y

    @Randall Tannen  could you please clarify what you meant by "non-residential real estate"?  My rental is a single family home.  How can I take a 'partial disposition on the old roof'? Could you please elaborate the calculation?

    Thanks,

    Jane

    0Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    2y
    Quote from @Jane Dang:

    clarify what you meant by "non-residential real estate"?  My rental is a single family home.  How can I take a 'partial disposition on the old roof'? Could you please elaborate the calculation?

    Non-residential does not apply to you. It would be a warehouse or an office building.

    Partial disposition example. You bought a house for $100,000. Every year, you take $3k depreciation. Now you go back to the $100k and say: $10k of that was the value of the roof. So you had a $10k roof with $300 of depreciation per year. After 6 years, you still had $8k of the roof remaining not depreciated. When you replace it, you deduct this $8k.

    Tax professionals who know the fine details of these issues are not cheap. You are unlikely to find quality advice for $100 that would save you $5,000 while you prepare your taxes yourself. I believe you either do the simple 27.5 yrs depreciation yourself or hire a tax pro, but the latter option is not guaranteed to pay for itself.
    2Reply
  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 901 votes
    2y

    Hi Jane,

    When you replace a roof, it typically counts as a capital expenditure (CapEx), which means it must be depreciated over time rather than deducted in full in the year you incur the expense. The IRS generally considers a capital expenditure to be any cost that improves the property, extends its life, or adapts it for a new use. So, when you replace something and make it bigger, better, or last longer, it's categorized as CapEx.

    On the other hand, repairs are generally routine maintenance tasks that keep the property in its ordinary operating condition. According to the IRS, a repair is something that doesn’t add significant value or extend the useful life of the property. For example, patching a small section of a roof would likely be considered a repair.

    However, there’s good news! You should look into a Section 179 deduction for your roof replacement. The Section 179 deduction allows you to deduct the full purchase price of qualifying equipment or property in the year it’s placed in service, rather than depreciating it over 27.5 years. For tax years beginning in 2024, the maximum Section 179 expense deduction is $1,220,000. Improvements to nonresidential real property, including roofs, generally qualify for the Section 179 deduction, meaning you can potentially deduct the entire cost of your roof replacement in the year you incurred the expense, provided it falls within this limit.

    So, your roof replacement could indeed be a capital expenditure, but with the Section 179 deduction, you might be able to get a significant tax benefit right away.

    I hope this helps clarify things for you!

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    2y

    @Jane Dang A roof replacement is typically considered a capital improvement because it adds value and extends the life of the property, meaning the $21K cost should be depreciated over 27.5 years. In contrast, a repair would be a smaller fix that maintains the roof’s current condition and is deductible in the same year. 

    Since you replaced the entire roof after storm damage, it's generally viewed as a replacement rather than a repair. Under the partial disposition rule, you can write off the not-depreciated value of the old roof.



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  • Account Closed
    Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
    2y
    Quote from @Michael Plaks:

    @Jane Dang

    The short answer is: 27.5 yr depreciation.

    The long answer is: the line you are asking about, the one between repairs and improvements, does not exist. It's not a line, it's a confusing (even for tax professionals) web of connected and contradicting rules. If you want to have a glimpse, look here:
    https://www.thetaxadviser.com/newsletters/2017/jun/expensing...
    Warning: it will not give you a clear answer, only a headache.

    But returning to the short answer, in most cases and based on your description, it will be 27.5 yr depreciation. Never 7 years.

    If she wants to take the depreciation in year one,  she can do a cost segregation and accelerate that depreciation schedule. Right @Michael Plaks? I too am a bit confused about the rules here

    0Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    2y
    Quote from @Jason Malabute:

    So, your roof replacement could indeed be a capital expenditure, but with the Section 179 deduction, you might be able to get a significant tax benefit right away.

    @Jane Dang

    The above was a pretty bad advice. Section 179 does not apply to real properties or improvements to real properties, such as roof replacement.

    5Reply
  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 901 votes
    2y
    Quote from @Michael Plaks:
    Quote from @Jason Malabute:

    So, your roof replacement could indeed be a capital expenditure, but with the Section 179 deduction, you might be able to get a significant tax benefit right away.

    @Jane Dang

    The above was a pretty bad advice. Section 179 does not apply to real properties or improvements to real properties, such as roof replacement.


     Yes, you are right.  I stand corrected.

    You cannot use Section 179 for a roof replacement on a real estate property because Section 179 is meant for equipment and certain other types of tangible personal property that businesses use in their operations, like machinery or computers.

    The IRS rules specifically exclude real property from being eligible for Section 179 because it’s seen as a long-term investment that should be depreciated over many years, rather than allowing a full write-off in one year.

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  • Malik JavedBusiness Member
    Specialist · Los Angeles California · Member since 2024 · 90 posts · 38 votes
    2y

    The definition of qualified property under Section 179 was expanded in 2017 under TCJA to include the following real property improvements to nonresidential buildings:

      • Roofing
      • Fire protection and alarm systems
      • Security systems
      • HVAC systems

    So you can expense roofing under Section 179 as long as it is an improvement to a commercial property and meets the Section 179 criteria.  You can also take a loss on the old asset.  Double gift!

    @Jane Dang  is your rental property a short-term rental or long-term rental?  If it is a short-term rental like an Airbnb, you may expense those costs under Section 179.  Otherwise, you will have to depreciate it over 27.5 year.  However there are many questions to determine if the roof work is a capitalized betterment or a restoration.  Generally, if it was due to sudden damage, the cost to bring the roof back to the same condition using the same materials is not a betterment.  If only the outer roof covering (membrane, shingles, etc.) was replaced but none of the underlying roof system, it is not a restoration and you can expense these costs.  

    Another option is to retire the old roofing costs from the original basis if you can't expense due to a capitalized event.  There is a software that can help determine the true value of the old roof costs that are no longer present, especially if a cost segregation study was not done previously.  Happy to assist if you're interested.  Feel free to send me a private message.  I hope this helps.

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  • Jane Dang
    OP
    Fremont, CA · Member since 2017 · 65 posts · 17 votes
    2y

    @Malik Javed, my rental is a SFH, not nonresidential and it has been renting for about 22 years. I have depreciated the house for about 20 years. Since you said 179 is only for nonresidential, does it seem that it won't be qualified?

    Here is the scope of my roof work.  @Bill Hampton said above, the cost for repair should be less than $2500.  My cost is $21K.  Do you still think I can qualify for repair?

    Thanks,

    Jane

    0Reply
  • Andrew Strauss
    Accountant · Pasadena, CA · Member since 2014 · 102 posts · 36 votes
    2y

    In general repairs is something that that bring back to its working condition without adding any value while replacement are generally considered improvements as they enhance the property or extend its life. Looks like others have already covered tax side of things,

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