New roof deduction question

[Opus 17]

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@DavidD66 wrote:

If you choose to capitalize and depreciate the cost of your roof, you should select "Real Estate" and it will be depreciated over 27 1/2 years.  You may want to review the IRS Tangible property regulations – Frequently asked questions to see if your "new roof" qualifies for expensing as opposed to capitalizing.  

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Note that the safe harbors to treat something as an expense, are that it costs less than $2500 (for most taxpayers) or $5000 (for some.)

There is another small business safe harbor that allows you to expense improvements instead of deducting them but only if your total repair and improvements are less than 2% of your basis in the building and the building's basis is less than $1 million.

I suspect that a new roof on a residential rental will not fit into either of those safe harbors. 

[DavidD66]

According to the IRS:

The final tangibles regulations synthesize existing case law and prior administrative rules into a framework to help you determine whether a cost is deductible as a repair and maintenance expense or must be capitalized because it's an improvement. If the amounts are not paid or incurred for an improvement to tangible property as determined under the final tangibles regulations, then the amounts generally are deductible as repairs and maintenance.

A unit of tangible property is improved only if the amounts paid are:

• For a betterment to the unit of property; or
• To restore the unit of property; or
• To adapt the unit of property to a new or different use.

The safe harbor elections mean you don't have to determine if the cost is for a repair or an improvement.  That doesn't mean you have to capitalize the cost of a repair because it exceeds the safe harbor amount.  If it doesn't qualify as an improvement, it is a repair and maintenance expense.  It does require an analysis of the facts and circumstances.  

[Opus 17]

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@DavidD66 wrote:

The safe harbor elections mean you don't have to determine if the cost is for a repair or an improvement.  That doesn't mean you have to capitalize the cost of a repair because it exceeds the safe harbor amount.  If it doesn't qualify as an improvement, it is a repair and maintenance expense.  It does require an analysis of the facts and circumstances.  

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Right, but the dollar limits are going to be tough to meet for a roof replacement on a rental house, unless I am mis-remembering the limits.   It's worth verifying, of course.