More on expensing vs. depreciating new roofs


R

Rich Carreiro

Ran across this online. Thought people might find it
interesting in light of the discussion we just had here:

http://www.energytaxsavers.com/articles/Tax-Aspects-of-Roof-Replacement.pdf
From the opening paragraph:
Recent proposed and re-proposed regulations aimed at codifying tax
case law make it clear that in certain cases the cost of
replacement roofs, including materials and installation labor, can
be expensed as repairs for tax purposes. Conversely, in certain
cases, the proposed regulations and existing tax case law make it
clear that required expenditures for a replacement roof should be
capitalized. Note that the proposed regulations will not be
considered law until and unless they are finalized.
 
R

Rich Carreiro

And I also found this (note the final paragraph):

Identifying the unit of property is very important. For items of
personal property, the unit of property is determined based on
the functional interdependence of the component parts. For real
property, the 2008 proposed regulations considered a building to
be a unit of property. This interpretation made it possible to
treat the replacement of a roof as a deductible repair under
certain conditions. The reason it was possible to expense a roof
replacement was that it was not considered a major component or
substantial part of the unit of property (the building).

In December, 2011 the Treasury issued new temporary regulations
which replace the 2008 proposed regulations. These regulations
are effective for taxable years beginning on or after January 1,
2012. Although the tests for betterment, restoration and
adaptation are still in the regulations, the rules on buildings
have been changed. Under the new rules, building systems are
considered separate from the building structure. Building systems
include the following: HVAC, plumbing, electrical, elevators,
escalators, fire protection, security systems and other items to
be determined by regulations at a later time.

The new regulations provide several examples dealing with roof
repairs and replacements. They conclude that a replacement of a
complete roof or a substantial part of the roof must be
capitalized as a restoration of the unit of property. One example
concludes that the replacement of a roof membrane but not the
decking or insulation can be deducted as a repair because the
roof membrane is not considered a major component.

(http://wcscpa.com/blog/?p=239)
 
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P

Pico Rico

Rich Carreiro said:
And I also found this (note the final paragraph):

Identifying the unit of property is very important. For items of
personal property, the unit of property is determined based on
the functional interdependence of the component parts. For real
property, the 2008 proposed regulations considered a building to
be a unit of property. This interpretation made it possible to
treat the replacement of a roof as a deductible repair under
certain conditions. The reason it was possible to expense a roof
replacement was that it was not considered a major component or
substantial part of the unit of property (the building).

In December, 2011 the Treasury issued new temporary regulations
which replace the 2008 proposed regulations. These regulations
are effective for taxable years beginning on or after January 1,
2012. Although the tests for betterment, restoration and
adaptation are still in the regulations, the rules on buildings
have been changed. Under the new rules, building systems are
considered separate from the building structure. Building systems
include the following: HVAC, plumbing, electrical, elevators,
escalators, fire protection, security systems and other items to
be determined by regulations at a later time.

The new regulations provide several examples dealing with roof
repairs and replacements. They conclude that a replacement of a
complete roof or a substantial part of the roof must be
capitalized as a restoration of the unit of property. One example
concludes that the replacement of a roof membrane but not the
decking or insulation can be deducted as a repair because the
roof membrane is not considered a major component.

(http://wcscpa.com/blog/?p=239)

I wonder if these proposed regulations fly in the face of that actual law.
 
B

Brian Coddington

Ran across this online.  Thought people might find it
interesting in light of the discussion we just had here:

 http://www.energytaxsavers.com/articles/Tax-Aspects-of-Roof-Replaceme...


    Recent proposed and re-proposed regulations aimed at codifying tax
    case law make it clear that in certain cases the cost of
    replacement roofs, including materials and installation labor, can
    be expensed as repairs for tax purposes. Conversely, in certain
    cases, the proposed regulations and existing tax case law make it
    clear that required expenditures for a replacement roof should be
    capitalized. Note that the proposed regulations will not be
    considered law until and unless they are finalized.
This regulation project has now resulted in temporary regulations,
which have the full force of law. As with most temporary regulations,
they were simultaneously released as proposed regulations. They were
released on 12/27/2011.

-Brian, EA
Fort Worth, TX
 
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In the other thread, the point threw out regarding the definition of a roof was brilliant. I had never thought of it until then but when you go in an replace asphalt shingles it's no different than putting a new covering on a couch or carpet on a floor. What is a roof? I have seen roofers go in and replace not just plywood sheeting underneath but also joyces etc. When a roof is put on a house, it's prefabricated with trusses etc. The shingles are just the skin. This one to my knowledge has yet to be tested in the courts but an excellent argument that no value has been added nor has it extended the useful life. The new regs are not easy to understand. Treating as a repair appears to be an option.

This is an area that will continue to be contested. When the Federal express case that created all this controversy to begin with came about, the regs were clear but some very bright attorneys challenged the regs. The regs are not gospel. And they won! I would never have thought the cost of an engine for a jet would be anything other than capitalized. This is where UOP came from. Can't fly the jet without an engine, can't use the engine without a plane.

I have a $35,000 roof replacement, just the skin. It was leaking. I know what I am going to do here. Seems like a lot but involved 5 structures.
 
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And one other comment to shed some perspective. IRS publications mean nothing except to the extent you can get a take on their position which is not necessarily based on the code. It's really just a black and white interpretation of what they want to see..
 

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