Is a roof replacement an expense or a capital improvement?
Short answer. For tax purposes, a full roof replacement is generally a capital improvement, not a deductible repair. On a residential rental it is usually capitalized and depreciated, typically over 27.5 years, while on your own home it is not deductible but adds to your cost basis. Small patch repairs on a rental are usually deductible as expenses.
This is general information, not tax advice. A tax preparer should review your specific situation.
On your own home
A new roof on the house you live in is not deductible in the year you pay for it. It is added to your home's cost basis, which can reduce the taxable gain when you eventually sell, though many homeowners fall under the home sale exclusion anyway. Keep the invoice and proof of payment with your house records indefinitely. If insurance paid for the roof after a storm, the basis treatment is different, so ask your preparer how to handle it.
On a rental property
- Full replacement: under the IRS rules for repairs and improvements, replacing an entire roof is generally treated as an improvement that must be capitalized and depreciated. For residential rental property, the IRS recovery period is typically 27.5 years. IRS Publication 527 covers residential rentals.
- Repairs: fixing a leak, replacing some shingles or a pipe boot generally keeps the roof in working order and is usually deductible as a repair expense.
- Partial replacements: replacing one slope or section falls in a gray area that depends on scale, so get professional advice.
- The old roof: in some cases an owner can make an election to write off the remaining basis of the roof being replaced. Ask your preparer whether it applies.
Records to keep
- The itemized invoice separating replacement from any repairs.
- Proof of payment and dates.
- Insurance settlement documents if a claim was involved.
- Warranty documents, which also help when you sell.
For what drives the cost you are capitalizing, see roof replacement cost in Georgia.