Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
Will likely re shingle an 18 year old SFR's roof in the next 12 to 18 months. No major structure work will be required, nor removal of old shingles. Will likely run around $6,000.
I've seen some fairly aggressive back and forth on this issue in other forums where the opinions run about 50% for capital, and 50% for expense. The criteria used to be does it add Value, Adaptability or Life to the asset - if so Capitalize. I personally don't thing it "adds" to any of those things, it merely "preserves" the original value and life. Any thoughts?
Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
9y
Christopher Smith
There isn't a clear answer. If you are simply fixing an existing roof due to issues then it can be considered maintenance. If the roof didn't already exist or you are improving the roof (upgraded materials/design, adding dog houses and dormers) then it could be capitalized.
However, if it is just a repair/replacement, you could consider it a capital item because it's a project over a certain dollar threshold, with that threshold being set by the company you run and used on a consistent basis.
Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
9y
Thanks - Yes I think this is a borderline call so if I am feeling aggressive I will just need to marshal my facts and make the best case that I can. There have been minor leakage issues in the past and some minor weather damage issues as well that I can probably leverage off of to bolster the case for expense characterization.
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
9y
Why are you just doing an overlay? Why not remove the old shingles, replace damaged underlayment and install new sheathing as well? With a complete replacement, you have a warranty for 25 years or so.
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
@Christopher Smith While it merely "preserves" the asset you to add life to it. If you're repairing a hole in the roof you're not adding life to the entire roof, just repairing the whole. If you're reshingling the entire roof you're adding life to the roof. Replacing a broken floor tile is a repair, replacing the entire floor (while preserving the original value) adds life to the flooring as it's entirely new. That being said, I'm conservative when it comes to any accounting having to do with my properties and I'm not a CPA by any stretch of the imagination. So take my opinion with the grain of salt that is it :-)
Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
9y
Well an analogy to your argument might be the painting of an entire rental property exterior (not just the bad spots in need of it). Under your logic that might presumably constitute "adding" (not just preserving) life, but it is generally recognized that painting of the entire property exterior may be be expensed (even the IRS explicitly recognizes this in its publications and regulations).
In any event, I think it's clear that construction of an entire new roof would be capitalized, fully removing all old shingles, and re shingling from scratch to a bare roof likewise would probably require capitalization, but simply laying a new layer of shingles over the existing shingles (which can be done in this case since its the original roof with only 1 layer of shingles), is a much closer call.
Investor · Charlotte, NC · Member since 2015 · 183 posts · 146 votes
9y
Christopher Smith "repairing" a roof is a deductible expense. Replacing a roof is a captial expenditure subject to depreciation. IMO, there's a thin line in what you're calling a repair vs a capital expenditure. IRS code specifically disallows as a "deduction" any amount paid for permanent improvements or betterments to property. The code further defines capital expenditures as an expense to prolong the life of the property among other things which are subject to depreciation. Good luck.
Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
9y
Repairing is an expense - Replacing an entire roof (even without a tearoff) is a leasehold improvement to be depreciated over time.
And even by the criteria of the Value, Adaptability or Life - then capitalize, you hit two of those. A new roof certainly adds value and life to a property. Life is obvious. If you don't replace the roof the life of your property will obviously be shorter. Value is a bit more subjective, but think about selling two identical properties, one with a crap roof that and one with a new roof. Do you get the same price? Nope, so it adds value.
Repairing is an expense - Replacing an entire roof (even without a tearoff) is a leasehold improvement to be depreciated over time.
And even by the criteria of the Value, Adaptability or Life - then capitalize, you hit two of those. A new roof certainly adds value and life to a property. Life is obvious. If you don't replace the roof the life of your property will obviously be shorter. Value is a bit more subjective, but think about selling two identical properties, one with a crap roof that and one with a new roof. Do you get the same price? Nope, so it adds value.
I don't see it quite that clear cut. I went on to a cite sponsored by tax practitioners (paid prepares, tax focused cpa's and tax attorneys) and even with them this exact same question gets about 50% on one side and 50% on the other.
With respect to value and life, utilizing that logic even a repair (no matter how small) could be seen as extending both value and life (as compared to just before repair value and life), and repairs can clearly be expensed no question about that. So I don't see that as being determinative.
Repairing is an expense - Replacing an entire roof (even without a tearoff) is a leasehold improvement to be depreciated over time.
And even by the criteria of the Value, Adaptability or Life - then capitalize, you hit two of those. A new roof certainly adds value and life to a property. Life is obvious. If you don't replace the roof the life of your property will obviously be shorter. Value is a bit more subjective, but think about selling two identical properties, one with a crap roof that and one with a new roof. Do you get the same price? Nope, so it adds value.
I don't see it quite that clear cut. I went on to a cite sponsored by tax practitioners (paid prepares, tax focused cpa's and tax attorneys) and even with them this exact same question gets about 50% on one side and 50% on the other.
With respect to value and life, utilizing that logic even a repair (no matter how small) could be seen as extending both value and life (as compared to just before repair value and life), and repairs can clearly be expensed no question about that. So I don't see that as being determinative.
I disagree with that. Repairing a broken vanity drawer doesn't add value. That stuff is always expensed. Repairing an HVAC system doesn't add any value, but a new one does. HVAC repairs are expenses and replacement should be capitalized and depreciated out. You'll get the same tax benefit eventually, it just comes over a certain time based on category. I have a very aggressive (and amazing) accountant. He's a wizard and absolutely maximizes, and every row I've ever done gets capitalized. But do what you want to do if you think it's 50/50
Property Manager has advised its not worth the additional expense which could be considerable.
Still would like to know why you are doing this in the first place. What problem are you correcting?
Because the Shingles will soon be reaching the end of their effective useful life of 20 years. However, at the same time all of the roof's other structural components are perfectly fine so all that is needed is an overlay of new shingles. Removing the old shingles would come at considerable additional time and even more so expense, and per the property manager (with about 30 years or of experience) one additional layer of shingles can be added without in any way compromising the roof's integrity due to weight or any other factors.
Plus a total tear off would be a factor that would further tilt the needle in favor of a capitalization requirement.
Repairing is an expense - Replacing an entire roof (even without a tearoff) is a leasehold improvement to be depreciated over time.
And even by the criteria of the Value, Adaptability or Life - then capitalize, you hit two of those. A new roof certainly adds value and life to a property. Life is obvious. If you don't replace the roof the life of your property will obviously be shorter. Value is a bit more subjective, but think about selling two identical properties, one with a crap roof that and one with a new roof. Do you get the same price? Nope, so it adds value.
I don't see it quite that clear cut. I went on to a cite sponsored by tax practitioners (paid prepares, tax focused cpa's and tax attorneys) and even with them this exact same question gets about 50% on one side and 50% on the other.
With respect to value and life, utilizing that logic even a repair (no matter how small) could be seen as extending both value and life (as compared to just before repair value and life), and repairs can clearly be expensed no question about that. So I don't see that as being determinative.
I disagree with that. Repairing a broken vanity drawer doesn't add value. That stuff is always expensed. Repairing an HVAC system doesn't add any value, but a new one does. HVAC repairs are expenses and replacement should be capitalized and depreciated out. You'll get the same tax benefit eventually, it just comes over a certain time based on category. I have a very aggressive (and amazing) accountant. He's a wizard and absolutely maximizes, and every row I've ever done gets capitalized. But do what you want to do if you think it's 50/50
Painting the entire exterior of a property clearly adds both value and life (at least value and life as measured immediately before the painting), yet it is recognized as an expense in both IRS publications and capitalization regulations.
I certainly recognize there is room for disagreement, which is why this has always been a very contentious area of the law and why the IRS and Treasury have rewritten the regulations in this area numerous times providing a number of new safe harbors provisions (i.e., specifically to avoid fighting over this issue on audit). But if the safe harbors are not chosen, its back to the eternal debate on where the line between expense and capitalization is drawn.
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
9y
Not on the tax question but just in general you might consider that the PM is not the expert on what roof repair/replacement to do. Roof expertise would come from roofer/construction expert and even then get more then one to tell you.
If you are re-layering the entire roof the roof is a new roof, we have capitalized roofs. I can see your logic on considering it a repair but essentially the only difference is the absence of tear off of shingles. But I would defer to the CPA opinion.
Not on the tax question but just in general you might consider that the PM is not the expert on what roof repair/replacement to do. Roof expertise would come from roofer/construction expert and even then get more then one to tell you.
If you are re-layering the entire roof the roof is a new roof, we have capitalized roofs. I can see your logic on considering it a repair but essentially the only difference is the absence of tear off of shingles. But I would defer to the CPA opinion.
The Pro Mgr did have one of his experienced roofer contractors evaluate it before he spoke with me. I also requested he have at least one more roofing contractor walk the roof before we settle on this method.
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
9y
@Christopher Smith good to hear I have had a couple done recently and one 3 layer tear off we are still discussing because they left out the dormer.... Make sure you know what they quote you.
Plus a total tear off would be a factor that would further tilt the needle in favor of a capitalization requirement.
Repairs fix something that is broken. Your comments suggest that nothing is broken, you are replacing the roof before it completely wears out. IMHO, your project is a capital expense.
Plus a total tear off would be a factor that would further tilt the needle in favor of a capitalization requirement.
Repairs fix something that is broken. Your comments suggest that nothing is broken, you are replacing the roof before it completely wears out. IMHO, your project is a capital expense.
Let's call it Roof Maintenance as in Repairs and Maintenance.