More on expensing vs. depreciating new roofs

Discussion in 'Tax' started by Rich Carreiro, Feb 19, 2012.

  1. Ran across this online. Thought people might find it
    interesting in light of the discussion we just had here:
    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.
    Rich Carreiro, Feb 19, 2012
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  2. 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.

    Rich Carreiro, Feb 19, 2012
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  3. Rich Carreiro

    Pico Rico Guest

    I wonder if these proposed regulations fly in the face of that actual law.
    Pico Rico, Feb 19, 2012
  4. 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
    Brian Coddington, Mar 14, 2012
  5. Rich Carreiro

    stephen wheeler

    Feb 15, 2015
    Likes Received:
    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.
    stephen wheeler, Feb 15, 2015
  6. Rich Carreiro

    stephen wheeler

    Feb 15, 2015
    Likes Received:
    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..
    stephen wheeler, Feb 15, 2015
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