How Long To Depreciate A New Roof On Commercial Property

In the United States, the depreciation of commercial property, including new roofing, is a complex process governed by the Internal Revenue Code (IRC) and IRS regulations.

Property owners can recover the costs of qualifying improvements over time through depreciation, which reduces taxable income.

The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant changes, particularly in the realm of bonus depreciation, affecting how quickly certain improvements can be depreciated however they came with a time limit. Understanding the types of roofing materials, their lifespans, and the associated depreciation methods is crucial for property owners aiming to optimize their tax benefits.

Legal and Tax Background

In the United States, the depreciation of commercial property, including a new roof, is governed by the Internal Revenue Code (IRC) and relevant IRS regulations. Under the IRC, property owners can recover the costs of qualifying commercial property improvements over a specified period through depreciation. This process reduces taxable income and thereby the tax liability for the property owner. The Tax Cuts and Jobs Act (TCJA) of 2017 introduced several changes, including the expansion of bonus depreciation, which can impact how quickly certain improvements can be depreciated.

What Is Bonus Depreciation?

The Tax Cuts and Jobs Act implemented 100% bonus depreciation for short-lived assets from September 27, 2017, to January 1, 2023. Beginning in 2023, the bonus depreciation rate decreases by 20 percentage points each year: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.

See our full article on bonus depreciation to learn more about it.

Types of Roofs and Depreciation Methods

Roofing Materials and Lifespans

The lifespan of a roof depends significantly on the materials used. Common commercial roofing materials include:

Roofing Material	Lifespan	Description
Asphalt Shingles	Typically last 20-30 years	Asphalt shingles are a popular choice due to their cost-effectiveness and ease of installation. However, their shorter lifespan compared to other materials means they may require more frequent replacement.
Metal Roofing	Can last 40-70 years	Metal roofs are highly durable and resistant to extreme weather conditions. Their long lifespan makes them an attractive option for commercial properties looking for a long-term investment.
EPDM(Ethylene Propylene Diene Monomer)	Usually lasts 20-25 years	EPDM is a synthetic rubber membrane that is highly resistant to UV radiation and ozone. Its flexibility and durability make it suitable for flat or low-slope roofs.
TPO (Thermoplastic Polyolefin)	Lifespan of 15-20 years	TPO roofing is known for its energy efficiency and resistance to UV rays, chemicals, and pollutants. It is a popular choice for environmentally conscious property owners.
Built-Up Roofing (BUR)	Generally lasts 20-30 years	BUR systems consist of multiple layers of bitumen and reinforcing fabrics, creating a durable and waterproof surface. This traditional roofing method is well-suited for flat or low-slope roofs.

Influence of Roofing Materials on Depreciation

The specific lifespan of roofing materials can impact the categorization of expenses and the depreciation method applied. For instance:

• Shorter Lifespan Materials: Roofs made of materials with shorter lifespans, like TPO or asphalt shingles, might qualify for more frequent maintenance and repairs, potentially allowing for accelerated deductions under certain conditions.
• Longer Lifespan Materials: Conversely, materials with longer lifespans, such as metal or EPDM, may not require as frequent replacements, but the initial cost could be higher, influencing the overall depreciation strategy.

Impact on Depreciation Schedule

The choice of roofing material affects the depreciation schedule because different materials have different useful lives. While the depreciation period for the building itself is standardized under the Modified Accelerated Cost Recovery System (MACRS), the roof’s material can influence whether additional deductions, like repairs or improvements, are eligible for accelerated depreciation.

Standard Depreciation Under MACRS

Under MACRS, commercial property is typically depreciated over 39 years. However, the Tax Cuts and Jobs Act of 2017 introduced the possibility of accelerated depreciation for certain improvements, including roofing.

This means that property owners may be able to write off the cost of a new roof more quickly if it qualifies as a repair or improvement under the tax law

In other words; allowing them to deduct a larger portion of the roof’s cost in the year it is placed in service. This can lead to substantial tax savings and improved cash flow.

Determining the Depreciation Period

The MACRS is the primary system used to calculate depreciation for tax purposes in the U.S. Under MACRS, commercial properties are typically classified as 39-year property, meaning the property is depreciated over 39 years. However, specific components or improvements, such as a new roof, may have different classifications depending on their nature and use.

Calculating Depreciation for a New Roof

1. Determine the Cost: Identify the total cost of the new roof, including materials, labor, and any additional expenses directly related to the installation.
2. Classify the Property: Confirm that the roof is classified as a 39-year property under MACRS.
3. Use the Appropriate Depreciation Method: For a 39-year property, use the straight-line method with a mid-month convention, meaning the property is assumed to be placed in service at the midpoint of the month.
4. Calculate Annual Depreciation: Divide the total cost by 39 to find the annual depreciation amount.

Example Calculation

• Cost of New Roof: $78,000
• Depreciation Period: 39 years

Annual Depreciation = $78,000 / 39 = $2,000

Impact of Roof Replacement on Depreciation

Full Roof Replacement

When a full roof replacement occurs, the remaining undepreciated value of the old roof should be written off, and the new roof is capitalized and depreciated over the new 39-year period. This process can impact the overall depreciation schedule of the property.

Partial Roof Replacement

If only part of the roof is replaced, the cost of the new part is capitalized and depreciated separately. The remaining useful life of the old roof is adjusted accordingly. Accurate documentation and professional assessment are crucial to determine the appropriate depreciation for the partial replacement.

Record Keeping and Documentation

Required Documents

For tax purposes, maintaining detailed records and documentation is essential. This includes:

• Invoices and Receipts: For all costs associated with the new roof.
• Contracts and Agreements: With roofing contractors and suppliers.
• Inspection Reports: From professional assessments before and after the roof replacement.
• Depreciation Schedules: Detailed calculations and supporting documentation.

Importance of Professional Assessments

Professional assessments play a vital role in supporting depreciation claims. They provide an independent evaluation of the roof’s condition, ensuring that the claimed depreciation is accurate and justifiable. This can be particularly important in the event of an IRS audit.

Conclusion

Navigating the depreciation of a new roof on commercial property requires a solid grasp of tax regulations and an understanding of the roofing materials involved. Different materials have varying lifespans, which influence their depreciation schedules and potential tax benefits. The Modified Accelerated Cost Recovery System (MACRS) typically categorizes roofs as 39-year property, but the TCJA offers opportunities for accelerated depreciation under certain conditions.

Accurate record-keeping and professional assessments are essential to ensure compliance and maximize tax savings. By strategically selecting roofing materials and leveraging available tax incentives, property owners can significantly enhance their financial outcomes.