Understanding the Depreciable Life of a Commercial Roof
When you think about the lifespan of your commercial roof, you’ll need to consider how long you can keep it and how long you can depreciate it on your business taxes. Commercial property asset depreciation generally requires you to break up the expense into pieces and deduct a portion each year. The depreciation of roof improvements depends on the type of improvement, when you make it, and the other deductions you make that year.
Depreciation is an important aspect of roof asset management. The tax benefits of a new commercial roof can help you manage your tax liability and plan for capital expenditures, but you must comply with IRS guidelines. While good documentation is important, depreciation is based on your placed-in-service cost; a contractor inspection can be helpful for planning but isn’t an IRS requirement for depreciation. In this guide, we’ll walk you through the basics and help you better understand the tax implications of your next commercial roofing upgrade.
IRS Rules for Roof Depreciation: Capital Improvements vs. Repairs
Before you can determine which method you should use for making a deduction, you need to understand how the IRS classifies capital improvements. For the most part, as a business, you’re allowed to deduct operating expenses in full, on the year in which you made the expense. That’s why you can generally deduct the paper you buy for the printer, the cost of Internet service, and purchases of office equipment as a full expense.
Capital improvements aren’t operating expenses. They are not a part of your normal mode of operation, and they also improve the property. Work that increases property value, like a new roof, must be depreciated. Repairs, on the other hand, often can be directly expensed.
If you’re feeling confused, here is an example. Let’s say you have a roof leak that causes water damage or makes your commercial floor slippery. When you pay to patch the leak, you can usually expense it because it affects your operations. But if you decide to replace the entire roof instead, you’ll need to depreciate that expense (or plan to claim it as part of a Section 179 deduction) because that cost improves your property value. The proper classification is key to ensuring that you comply with IRS guidelines and minimize your risk of an audit.
Calculating Commercial Roof Depreciation
Next, you’ll need to calculate how much to depreciate. Commercial roof replacements are generally depreciated over 39 years because a roof is part of the building, and roofs do not qualify as 15-year Qualified Improvement Property (QIP). A straight-line depreciation roof cuts the cost into 39 pieces, and you’ll claim one of those pieces each year. It’s a straight line because you make the same deduction every year.
Make sure that you know what to count in that total expense before you start dividing. The total cost you can deduct involves a variety of expenses, including:
- Permits
- Design work
- Roofing material
- Removal of old roofing
- Installation/labor
To get the right number for a commercial roof depreciation schedule, just get the total and a calculator. If you spent $390,000 on the roof, you may be able to claim $10,000 per year in depreciation.
Although you’ll typically need to depreciate the cost over time, there are scenarios in which you could deduct more each year, or even all of the expense in the year you install the roof. There are restrictions on this kind of deduction for capital expenses, so you’ll want to make sure you qualify before you commit to the upgrade.
Accurate documentation is key to maximizing your roof tax deduction and maintaining compliance. You may need to provide proof that the roofing came into use during a specific year, which highlights the importance of seeking a post-installation verification. Ariat Roofing professionals can help you with proper documentation and warranty records.
Depreciable Life vs. Actual Lifespan: What Property Owners Should Know
IRS roof depreciation guidelines presume a longer useful life for the improvement, even if the depreciation schedule and the actual lifespan don’t perfectly line up. Durability of a roofing product depends on a variety of factors, such as:
- Choice of roofing material
- Installation
- Location
- Climate
- Preventative maintenance
As a rule, you can expect to get 15 to 50 years as a commercial roof life expectancy, mostly depending on the material. The least-expensive asphalt shingles may last 15 to 20 years, whereas you might get 50 years or more from tile roofing.
The extreme heat and UV exposure of the Las Vegas climate puts an additional strain on the roofing material. This means that your roof may wear down and require replacement sooner than it would for a milder climate.
If you want the longest possible lifespan for your roofing, routine inspections and preventative maintenance make a significant difference in performance. An experienced contractor can go up to your roof and evaluate its condition. They can identify early signs of roofing damage or failure and talk you through your options to repair or replace, so you can get the maximum ROI on the lifecycle of the roof.
Remember that depreciation and value don’t always go hand in hand. As long as your roof remains in good condition, it provides you with structural and resale value regardless of where you are in the depreciation schedule.
Tax Deductions and Energy-Efficient Roofing Opportunities
Although many commercial property owners choose to depreciate the cost of a new roof over time, others may want to deduct the full cost immediately. The IRS provides a pathway for businesses to deduct the full amount of certain expenses in the year of purchase, depending on the expenditure and the total cost.
Section 179 of the IRS code permits companies to deduct the purchase of business equipment or qualified real property. Although many common expenses do not apply, roofing improvements to nonresidential properties usually do. This means you may be able to expense some or all of a qualifying commercial roof replacement in the year it’s placed in service, subject to Section 179 limits and your taxable income.
Keep in mind that Section 179 isn’t the same as a bonus depreciation, although they look and function somewhat similarly. Bonus depreciation allows businesses to deduct a percentage of the cost of certain capital expenses with no limit, but roofing usually doesn’t qualify.
Section 179D Deductions
If you decide to make energy-efficient roofing improvements, you may qualify for a Section 179D deduction instead. Under the Inflation Reduction Act, certain improvements qualify for deductions based on the square footage, energy savings, and other factors. In order to qualify, the roofing improvement must lower the total anticipated energy usage by a certain amount. The higher the efficiency, the more you may be able to deduct.
Energy-efficient roofing is a critical decision for the desert climate of Las Vegas, where the high heat can increase your cooling costs. Choosing a light-colored or reflective roofing lowers the rate of solar heat gain, so that your commercial buildings have less heat to expel. “Cool roof’ systems can reduce heat gain and may contribute to overall building-envelope energy savings, and Section 179D eligibility depends on certified whole-building performance against IRS/ASHRAE standards.
When you look at your options for roofing upgrades, be sure to factor these qualifications into your decision. Consulting your tax professional and a qualified roofing contractor can help you determine which products will meet guidelines and provide you with the best long-term performance.
Choosing which deduction to take depends on your total expenses and the type of roofing you install. Section 179D provides a calculation for a deduction price per square foot that increases with energy savings, regardless of the amount you spend. Section 179 allows you to deduct the entire cost with a higher annual limit, but the total deduction per square foot might be lower than you could get with Section 179D. It’s best to plan out your tax strategy before you make the improvement.
Planning for Depreciation, Maintenance, and Replacement
Although the depreciable life of a commercial roof isn’t precisely tied to the roofing lifespan, you can use it in your capital reserve planning and tax strategy. You can continue claiming the roof expense for the 39 years as long as you still have it, and there are plenty of financial benefits to keeping the roof as long as possible.
Use proactive maintenance and inspection reports to estimate when you’ll need to replace the roof, so you can coordinate your expense planning to handle this larger capital cost. Regular documentation from a roofing partner like Ariat Roofing helps you to make accurate insurance claims, improve the efficiency of your tax filings, and provide maximum warranty protection.
If you’re unsure of the condition of your commercial roof, scheduling an evaluation is your best route to gaining useful information about the roof, the need for commercial roof repair, and the handling of roof expenses for tax purposes. You’ll definitely need these details before you budget for a major upgrade. At Ariat Roofing, our commercial roofing services help you comply with roof capitalization rules and get the most from your investment. Contact us to learn more about your options.