Tax Help For Leaking Roofs
When you have a leaking roof, there is a
wide spectrum of options for fixing it. You can choose to “patch and
pray”, to tear off the roof and completely replace it, or you can choose
to renew and restore the roof. Debates about the best way to fix a roof
abound.
Often, however, these debates focus only
on the technology involved and the total cost after taxes may not be
considered. However, when the tax consequences are taken into account,
preventive maintenance financially becomes the clear choice.
Internal Revenue Codes specify that the cost of maintenance for business
property is a deductible expense. Your customer will do well exploring
this issue with their tax consultant before making any decision. On
the other hand, money
spent for capital improvements must be amortized over the life of the
property and can only be deducted as annual depreciation. The cost of the
improvement is recovered in either case, but the period of time over which
the deductions are spread (immediately for maintenance, 15 years for
improvements) gives restoring a roof a major cost advantage.
Not all roofing systems will receive the
same tax advantages. The way the work is performed determines whether the
cost can be written off in the current year or must be capitalized. The
Supreme Court offered the following guideline in Welch v. Helvering: "A
repair is an expenditure for the purpose of keeping the property in an
ordinarily efficient operating condition. It does not add to the
value of the property, nor does it appreciably prolong its life. It merely
keeps the property in an operating condition over its probable useful life
for the uses for which it was acquired. Expenditures for that purpose are
distinguishable from those for replacement, alterations, improvements or
additions which prolong the life of the property, increase its value, or
make it adaptable to a different use. “The one is a maintenance
charge, while the others are additions to capital
investment which should not be applied against current earnings.”
In selecting a process for his roof,
building owners will do well to first be sure his choice makes commercial
sense. In all cases, unless the roof is too far gone, a good coating
system will be the most cost effective. Add the tax savings advantage -
and you will convert many prospects who never realized this. When
you help building owners understand the tax advantages of renewing their
roof, suddenly they become more interested. Let the government's
encouragement of this process be on your side.
