Can new roof be added to the cost basis of a property sale?

[Sdong258]

 According to IRS  Publication 523 page 9, new roof is included in the Examples of Improvements That Increase Basis. But when googling there are many experts who answered "No".  Why is it different, and does it have anything to do with whether it is a rental or a primary home? Thank you in advance.

[KrisD15 · Accepted solution]

Yes it depends on if it is a rental.

If it is a rental, the roof is added as a separate asset if done after the rental is placed into service and added to the basis if done while the building is first being made ready for service. 

For a primary residence, it gets a bit more complicated. 

If the roof adds value, it could be added to the basis, but if it is more of a repair or replacement, it would not increase the basis. 

For example, an old asphalt roof replaced with a metal roof could add value and therefore be added to the bass, but replacing the roof after 10 years of ownership with a similar roof would not count.    

It is more of a case by case issue. 

The main point is  - 

did the roof just bring the property back to the point of when you originally purchased it (not added to basis) or 

did you replace the roof in a way where it caused the property to be MORE than when you first purchased (added)

[Sdong258]

Hi there,

Thank you for answering my question and I just now ranked the answer. I sent out another question to you yesterday as the below:

While I was trying to find out what can or can not be included in cost basis with the property sold, there is a charge of $150 called, Capital Contribution, under the category, Adjustments for items paid by seller in advance. I am not sure what it is and can it be included to the cost basis.

In addition, here I just wanted to make sure the followings can't be included in cost basis besides those obvious fees:  Lender's Inspection Fee, Tax Service Fee, Flood Cert Fee and Processing Fee.   "

"

Thank you,

Sdong258 

[ThomasM125]

The fees you mention are selling expenses that you subtract from the sales proceeds to determine the gain on sale of your house. Although technically not added to the basis, they are deductible when you sell the house.

[Orcasong]

Some "experts" say a new roof is not deductible, notwithstanding what IRS says.  The reason for this is that some experts aren't sufficiently expert.  The IRS guidance is clear.  A new roof clearly extends the life of the property and adds value as well. 

[sol42]

As a homeowner I have a follow-up question.  In my example the home was newly constructed for me over 15 years ago and the roofing was $10,000 of the total cost. Now the shingles are badly worn and need to be replaced and the replacement of them costs $25,000. Could the difference between the two costs ($15,000 in this example) be added to the basis of the house?  The concept is that the original roof is worthless, had to be removed and disposed of, and should be removed from the basis as it is no longer part of the property.  Likewise the cost of the new roof then gets added to the property for a net addition of the difference between the two.

Another consideration would be that part of the new roof cost is the removal and disposal of the old roofing material and that portion shouldn't be added to the basis.

[JotikaT2]

Yes, the new roof in this situation would qualify as a capital improvement since the new roof would qualify as extending the life of the asset.  In your case, the $25,000 replacement cost would be added to the basis of your home.  When you eventually sell your home, this cost would be included as part of the basis and will reduce any potential gain that would be reported on your tax return.

Please see this IRS publication to additional information on the cost basis of your home improvements.

@sol42 

[pk]

@sol42 , agreeing with  my colleague @JotikaT2 , that it is cost to you for the improvement that is added to your basis in case of improvement per sections 1011 thru 1021 of  IRC.   Thus if your cost  to improve the  home / asset  with a new roof  ( out of pocket expense ) is $25,000 then the whole amount is added to your basis  at the time of actual  execution of the improvement.   This is in contrast to the depreciable  basis  which is based on actual  FMV increase by the  said improvement.

Make sense ?