While this topic is a little bit clearer when you are operating a property as a business owner (for example roof replacement capital improvements for commercial and investment properties), it’s still a big question for homeowners who are improving the condition of their home.

So can you deduct roof replacement costs on your taxes?

Generally speaking, as with any major home improvement (like replacing your HVAC system or making an addition), roof replacement cannot be deducted in the year that you spent the money on the roof.

However, if you keep track of the expenses, you generally can reduce your taxes when you sell your house.

We are not accountants, so please talk this over with a certified public accountant if you’re looking to use a roof replacement as a deduction. We’re only providing this information as a general guideline based on our experience as roofers. You will also have to ask about any significant changes from the 2018 overhaul of the tax system.

Understand the difference between repairs and capital improvements

We have another article about capital improvements you can read in further detail to determine this, but the brief version is this: the cost of improvements are generally items you can subtract from the sale value of your home (to reduce taxes), but repairs are not.

Improvements are items that improve or better the quality of your home. Repairs maintain the existing value of the house. Sometimes the difference between the two can be tricky and we encourage you to give our other article: “Is Roof Replacement a Capital Improvement?” a read.

Generally improvements qualify as things like: putting an addition on your home, adding new seamless gutters, or adding in storm windows.

However actions like painting a room, fixing the gutters or repairing a small section of the roof qualify as repairs and are not deductible.

How does roof replacement work to reduce my taxes when selling my home?

As of this writing, the first $250,000 of profit on a sale of your primary residence is tax free for individuals (and $500,000 for married filing jointly) so long as you’ve lived in the house for at least two to five years (in other words, it’s not a fix and flip).

Because losses you take on the sale of personal residences are not tax deductible, you’re going to want to make sure you keep a good record of all of the improvements that have been made to the property while you’ve owned it to avoid any unnecessary extra taxation because of an inflated home value or other circumstance.

What if I operate a business out of my home?

In cases where you operate a home office, or operate a business out of your home legitimately, then parts of your expense can be written off as part of the business expense. For example, if the whole house is being re roofed, then the portion covering the home office can be tax deductible in that year.

Additionally, if you rent out part of your home to a tenant, then the part where the expense occurred could also be tax deductible.

Other methods of saving on tax credits while having a roof replaced

An often overlooked part of the tax game for homeowners is tax credits – usually in any given year a portion of your improvements can be written off using government tax credits usually geared towards green or clean energy improvements. Examples of this can include: skylight installation, solar panel installation and even “cool roofs.”

No secret about it: roof replacements are a significant expense to homeowners and property managers. When we’re on an estimate for a new roof one of the most common questions we get is whether or not this investment counts as a capital improvement.

While a homeowner can certainly qualify their new roof replacement as a ‘capital improvement,’ when it comes to the popular buzz phrase on increasing “curb appeal,” it’s a different ball game if we’re talking about how to handle it in your taxes to take the most advantage over the costs paid on the job.

Who does this topic most commonly apply to? Owners of commercial or investment properties primarily. Usually those who are able to write off their property as part of a business expense. If this isn’t you, or if you’re unsure, we advise talking with your accountant to see if this kind of write off can apply to you.

We aren’t accountants, so the below information is meant as a general guideline and talking points to ask your CPA.

Part of understanding when a roof qualifies is understanding the difference between “maintenance” (an expense) and “capital improvement” (a capitalization).

When Roof replacement is a repair expense – know the difference

Typically when only a part of the roof is replaced, the job is going to trend towards a standard repair expense because you aren’t “improving” your asset (your property), you’re maintaining it’s value.

Maintenance costs are normally expenses related to “routine actions” to maintain your property value. Plus maintenance work has a very specific definition: “routine and preventative maintenance that is performed to restore an asset’s physical condition or operation to a specific standard, prevent worsening deterioration, replace or exchange a component at the end of its “useful life.”

Temporary repair or patch work, or inspections for continuing maintenance also fall into this category. You can check out our recommended top tips for roof maintenance here.

What qualifies as a capital expenditure or improvement?

Capital expenditures, improvements and the like are all actions that are designed to increase the value of an asset. Usually this means it has to be boosted beyond the original value. So for example, if you were to replace an entire roof with metal instead of asphalt shingles,  you would be increasing the original value, not performing a necessary step to maintain the original value.

It’s important to note that repairs can turn into  capital improvements. For example: let’s say during the course of repairing a roof leak it becomes discovered that the damage is more extensive than can be simply patched and repaired. In that instance, where more than 50% of the roof has to be replaced, the expense becomes an improvement versus maintenance.

The first step is to ask yourself a couple qualifying questions (and to bring these questions and your reasoning for them to your accountant). What you’re doing is applying the “betterment” standard.

How can I correctly classify my roofing project as an improvement or repair?

1. Why is your roof being replaced?

If a sudden storm came in and damaged the roof and you’re looking to fix the sudden damage, generally this is not making the asset “better” it’s restoring the original value, so this is not going to qualify as a capital improvement if you are going to use the same materials.

You can more obviously “improve” the original value by changing grade of materials (for example going to a metal roof instead of a shingle roof or PVC instead of EPDM on the commercial side), but you can also improve on the original value by enhancing the grade of material beyond the original value. A great example of this would be going from standard grade shingles to GAF architectural shingles.

2.) How long has it been between the purchase of the property and when work was done on the roof?

In many cases, if you have to do significant work on your roof and it’s been within about two years of you buying the property, the work can qualify as betterment because you’re correcting defects or pre-existing conditions. If it’s been a significant amount of time, e.g. 5+ years since you bought the property, then generally “betterment” won’t apply.

3) What was the roof material before?

If you use materials that significantly improve the life span compared to the original roof, then you can generally claim it as betterment. For example, a shift from standard asphalt shingles that last 20 years to slate tiles that last 50+ years is a betterment because you’ve increased the quality of the building.

A subset of this question is: did you use better or “improved” materials because the original material wasn’t available anymore or technology has been enhanced? For example, if you had a BUR roof (built up roof) and replaced it with EPDM, this doesn’t necessarily mean a betterment because it’s not practical to use the BUR style these days. Additionally, if the original roofing material performs worse than the standard set by the industry for the building type, it’s not going to be a betterment.

4) Did you get the roofing job done because the building was expanded (e.g. additions)?

If this is your situation, then yes the part of the roof as part of the addition qualifies as a capitalization, and this may extend to the rest of the roof replacement work depending on the questions above.