Help With Understanding Capital Expenditure Depreciation

[David M.]

Hello, all.

I generally let my accountant do his thing, but I try to understand the ins and outs of taxes for my own benefit as well. I understand the concept of depreciation on a home over 27.5 years as an expense that has to be repaid, assuming the property doesn't lose an equivalent amount of value over that time (depreciation recapture). However, I'm struggling to wrap my mind around the idea that I have to depreciate, for example, a roof over 27.5 years.  If I sell the property 10 years after putting on a new roof, I miss out on claiming 17.5 years of that cost, or more than 2/3 of that cost. If my rental doesn't appreciate ( generally, mine don't; we buy in working class areas for cash flow), am I just out the difference between what I wrote off as depreciation, and what I paid in up-front cost to replace the roof?

This would be so much simpler if I could just write off the cost of the roof as an expense and deduct it in one year. Sigh.

[Corby Goade]

I am not an accountant, and this is a conversation you should have with your accountant, for sure. 

That said, no, you are't missing out on recapturing that expense. If you only depreciate for 10 years, theoretically, you are recapturing your additional 17.5 years through your profit in the sale, ie, the buyer is paying market value for the life that is left in that roof. 

This is why you fully write off repairs and maintenance in the year that they occur- by definition, those expenses don't add value or life to the house. A roof, furnace, cabinets, new plumbing, etc improve the value of a house and extend it's useful life, which is why you depreciate them.