News: Ask the Professional - Roof Replacement

For Immediate Release:
June 11, 2010
Contact:
John McGovern, Tax Supervisor
415-777-4488
jmcgovern@rina.com

I recently replaced the roof on my warehouse. Do I need to capitalize and depreciate the roof over 39 years?


Proposed Treasury Regulations now provide guidance on capitalizing vs. expensing new roofs.

The IRS provides a three part test for capitalizing roofs.

1. The Betterment Test (does it make the building "better"?)

2. The Restoration Test (does it extend the useful life of the building?)

3. The Adaptation Test (is it now suited for additional uses?)

If none of these apply, you may be able to expense your roof in full.

• Document the need for replacement. One minor leak in an otherwise healthy roof may not be enough.

• Determine that your total roofing cost is less than 50% of the total building value.

• Replace your roof with similar, though updated and modernized, roofing material.

• Form 3115, Change in Accounting Method, provides recourse for previously capitalized roofs.