The roofs of your business premises are exposed to the harsh Floridian elements on a daily basis, so it’s no wonder that proper roof maintenance is a necessity. But before you rush into a repair job, consider the tax implications of the repair. You will find that the difference between “maintenance” and “improvement” can be very subtle, yet it is highly important to the IRS. Ideally, we all want to pay as little tax as possible and various specifics such as the material used in the repair or even the wording on an invoice can affect the amount and timing of your tax liability.
Roof Maintenance vs. Improvements
Your roof is a form of tangible property, and in 2014 the IRS issued new regulations that distinguish between maintenance and improvements to this property. The general rule is that maintenance or repairs to property can be deducted in full during the year in which they occur, while any repairs that improve the property will have to be capitalized and deducted over multiple years as outlined in IRS publication 946. These are some characteristics of a repair that the IRS would view as an improvement:
- Repairs that increase the value of the property
- Repairs that extend the life of the property
- Repairs that create a better asset by improving its quality, functionality, aesthetics etc.
- A repair that restores a certain functionality of the asset that it did not have when you purchased it, or adapts it to a new use
In contrast to an improvement, a genuine repair or routine roof maintenance can be defined as any expense incurred to keep your roof in its usual operating condition. You can expect to carry out this maintenance on a regular basis and the repairs generally result from the wear and tear of being used in your trade or business. It should also be fully expected that you would need to perform this maintenance multiple times during the shorter of a ten-year period and the class life for the property that has been determined by the IRS. A prime example would be when you need to repair a roof due to rain damage, and the repair is performed using the same materials that the roof was originally constructed from. The entire cost of this maintenance can be deducted in the current year of assessment.
When it comes to roof maintenance in general, try to perform repairs on the damaged sections rather than replacing the entire roof and always practice preventative maintenance; this is the most tax efficient solution.
Safe Harbor Rules
The IRS has instituted regulations that allow certain repairs to be deducted immediately, provided that the total expense falls below a certain threshold. The taxpayer also needs to formally decide to utilize the safe harbor method by drafting an election statement and attaching it to their tax return.
The De Minimis safe harbor method allows the taxpayer to deduct a maintenance expense in full immediately if the amount incurred is less than:
- $5,000 for businesses that publish annual financial statements
- $2,500 if the business does not publish annual financial statements
The safe harbor election for small taxpayers states repair expenses can be deducted immediately if maintenance is “less than or equal to the lower of $10,000 or 2% of the unadjusted basis of the property”. It must also be noted that this election is only available to “businesses with revenues under $10 million and the property being repaired has an unadjusted basis under $1 million”.
Who to Call (H2)
For more information regarding the tax intricacies of maintenance to your property, please contact a certified public accountant (CPA). They are well versed in tax legislation and understand how the IRS views your business expenditure. For help with your roof maintenance and repairs, don’t hesitate to call us at AABCO Roofing. Operating in South Florida since 1988 – we have become one of Florida’s most trusted roofing specialists and you can rest assured that we will meet all of your roofing needs.
