Tax implications of roof replacement due to hail damage

6 Replies

I'm trying to figure out how I should report the roof replacement in one of my rental homes due to hail damage on Schedule E. The rental home was purchased in May 2017 and the previous roof had half of its usage life left according to inspection report. It had to be completely replaced due to hail damage. The insurance company paid for the replacement and I had to pay out of pocket of $1000 deductible. Can I deduct the $1000 as an expense? How do I depreciate the new roof? Does the half usage life of the original roof factor in the depreciation of the new roof? Any advice will be appreciated!    

Hello Olivia!  First of all, I am not an Attorney or a CPA.  You should be able to deduct all expenses on any business property.  Depreciation of a roof is deductible in the standard allowance of years the IRS gives you.  So you just add that cost to the total depreciation used or depreciate it separately.  You should be able to include your deductible to the cost.

That is what my age of 61 has determined to be your responsibility.

Good luck to you!

@Olivia Piper

The life of the old roof won't matter in this case.

What did your tax accountant say about expensing it in the current year or capitalizing it and depreciation it over its useful life?

There is a de minimis safe harbor that allows you to expense items that are below $2,500. However, I can't say for certain if this case would qualify since it went through insurance and I don't have all the facts in front of me.

It is worth discussing the de minimis safe harbor with your tax accountant and see if you can deduct it all.

You should be able to do a partial asset disposition to dispose of the inferred remaining basis of the old roof. Ask your accountant or tax advisor, this is where doing it yourself will likely cost you money. I agree that the $1000 out of pocket will probably be 100% deductible under the deminimis safe harbor
@Olivia Piper not an accountant, but your property had a roof when you bought it and that roof along with the rest of the property is being depreciated each year when you file your taxes. If in one year your insurance pays for a roof and your cost is the deductible, then your cost can be written off that year (or depreciated over a period of years if over $2500.) But as the new roof replaces the old one, you just continue on the original depreciation schedule. If you add a new carport to your property, then you depreciate its cost, which includes a completely new section of roof, over a period of years.

@Basit Siddiqi 

Thanks for your advise. I read about De Minimis Safe Harbor lately but am not sure how the qualification and election process work in my case? I understand the total roof replacement cost is way more than the single item/invoice limit of $2500, so it may not qualify? The other concern is if the property item can last more than 12month useful life, (a new roof definitely can) does it also disqualify it for De Minimis Safe Harbor? I also had to replace the carpet in the rental home after the tenant moved out due to dog damage on the carpet beyond repair. The carpet replacement cost might qualify for the De Minimis $2500/item limit, the question is though, how do I elect De Minimis for tax year 2018? Was I supposed to elect it with my 2017 tax return in the beginning of 2018 to be able to apply it? If i didn't elect it back then, is it too late to elect it now? The rental is owned by a single member LLC without AFS. If you could help clarify my puzzles on the topic, it's will be greatly appreciated. Thanks!

Would the casaulty loss deduction apply for most of the insurance deductible in this scenario?

As to depreciating the new roof, I would argue that the new roof is not separately deductible because you did not pay for it.  Furthermore, from your comments I assume you are depreciating the entire dwelling structure (including the roof) as a single asset.  So, I suggest you just keep depreciating the dwelling structure as you have been.  Take a repair deuction or take a casaulty loss deduction for the insurance deductible and don't worry about depreciation. 

BTW, if your insurance loss also covered loss of rent, any rent loss paid by your insurance is reported as rental income on schedule E when received.