Would you like to save money on taxes for your business? Did you know you may be eligible for a 100% tax deduction on your commercial roof?
Federal tax reform and the extension of some tax programs mean you can deduct up to the full cost of your commercial roofing installation, repairs, or maintenance. Find out how to take advantage of these benefits.
Federal Tax Reform Makes It Easier to Get a Tax Deduction on Your Roof
Congress passed the Tax Cuts and Jobs Act in 2017. Section 179 of this tax code lets business owners deduct the cost of certain property, including roofs, as an expense in the first year the property comes into service. This new tax law encourages qualified expenses like roof maintenance and repairs by expanding a business’ expensing limits.
Changes from Previous Tax Law
Previously, the IRS considered these deductions to be a capital expense with depreciation over multiple years. (The IRS timetable for depreciation has historically been 39 years.) Unfortunately, many commercial roofs have a service life of 15 to 25 years, so often, the building owner wasn’t able to fully deduct the cost of the roof.
The Tax Cuts and Jobs Act increased the amount that taxpayers are allowed to deduct and raised the threshold beyond which the deduction starts to phase out. (Keep in mind, the IRS can change these limits yearly to account for inflation.)
For the 2020 tax year, you can deduct up to $1,040,000. The limit before the reform was $500,000. Additionally, for 2020, the investment phase-out starts at $2,590,000. So, if your roofing expenses were more than $2,590,000, you wouldn’t get the full $1,040,000 deduction. This deduction gradually gets smaller and it’s fully phased out when you’ve placed $3,630,000 of eligible assets into service for the 2020 tax year. Why does it phase out? Having a cap on eligible expenses helps to ensure that Section 179 primarily benefits small and medium-sized businesses.
For the 2021 tax year, the maximum deduction will increase to $1.5 million and is reduced on a dollar-to-dollar basis for costs exceeding $2.62 million
Conditions for the IRS Section 179 Deduction
To qualify for a Section 179 deduction, you must purchase and put the new roof in service between January 1 and December 31 of the tax year. The same conditions apply to maintenance or repairs. In addition, the amount you deduct can’t be more than the total amount of taxable income your business had that year.
A roof for a property with combined commercial and residential use can qualify for Section 179. However, more than 50% of the roof must be deemed used for business purposes.
Additional Tax Benefits with Section 179
Section 179 includes several additional benefits for eligible roofing expenses. These provisions give you even more tax advantages.
Write Off Your Existing Roof
If you replace your existing roof, you can write off its remaining cost. You can take the original cost of the roof minus the accumulated depreciation as a loss. Then, you get a deduction for the new roof and lower your taxes from writing off the existing roof as a loss.
Take the Deduction Before You’ve Paid for the New Roof
You can take the deduction for your new roof as soon as it’s “in service.” When your roofing contractor has finished the work and the roof is functioning, the roof is in service for tax purposes.
Interestingly, sometimes you can take the tax benefit even if you haven’t paid for the roof yet. For example, you may have received a bank loan or arranged a deferred payment agreement with your roofer. This means that there may be a chance that you can take the full deduction without necessarily having incurred any expenses!
Repairs and Routine Commercial Roof Maintenance
Any costs that improve the value of your roof are still subject to depreciation as capital expenditures. However, Section 179 broadens the types of roofing improvements that qualify as a deductible expense.
The IRS defines acceptable roofing repairs and maintenance as anything that keeps your roof in a normal and efficient working condition. This definition means that most repairs, restoration, and routine maintenance qualify for a Section 179 deduction.
Tax Deductions for Energy Efficiency
Increasing the energy efficiency of your roof can also qualify you for a tax deduction. Congress passed a spending package in 2019 that retroactively extended Section 179D tax deductions for energy efficiency. You can now take advantage of these deductions for projects that came into service between January 1, 2018, and December 31, 2020.
According to ICS Tax, LLC, a proposed coronavirus relief legislation titled “Consolidated Appropriations Act, 2021” would extend 179D energy efficiency incentives.
“CAA 2021 would make the 179D deduction permanent, and tie the maximum 179D deduction of $1.80 per square foot to inflation, allowing it to increase over time. The baseline standard for the 179D deduction would also increase to account for improvements in energy efficient building materials and new technologies.”
How to Qualify for a Section 179D Tax Deduction
Section 179D of the IRS tax code gives owners of commercial buildings up to a $1.80 per square foot tax deduction for installations that reduce energy use by at least 50%. You can take partial deductions up to $.60 per square foot for measures affecting systems like the building envelope, which includes the roof and you need to get at least 10% energy savings to qualify.
Energy reduction is based on a comparison to ASHRAE Standard 90.1-2007 for buildings placed in service after January 1, 2018. ASHRAE standards provide the minimum requirements for a building to qualify as energy efficient. The Office of Energy Efficiency and Renewable Energy has special software to calculate your energy savings tax deduction.
Types of Energy Efficient Roofing Installations
You can achieve energy savings with your roof in several ways. First, keep in mind that roofing materials impact your energy usage. For example, a metal roof absorbs less heat from the sun, which will help lower the interior temperature of the building during summer months.
Choosing a white or light-colored roof improves cooling efficiency. A darker color will absorb heat and make the inside of the building warmer.
Roof insulation is another important factor in energy efficiency. Several types of insulation materials are available. An experienced Youngstown-area commercial roofing contractor, like TEMA Roofing, can recommend the best insulation for your building and the local climate.
Additional Benefits of Energy Efficient Roofing
Qualifying for a tax deduction is the first advantage you get from installing a roofing system that reduces your energy use. Reducing your energy consumption can also lower your business operating expenses. Remember, even a 10% reduction in your energy use during the year will create significant savings.
Taking Advantage of a Tax Deduction on Your Commercial Roof
You should always consult a tax professional before making any tax-related decisions for your business and commercial property. When you’re ready to take a tax deduction on your roof, then you need to consult a roofing professional.
TEMA Roofing Services has over 50 years of experience in the industry. Whether you need a new roof, roof replacement, repairs, or maintenance, we’ll do the job right. We’ll also work with you to ensure that your roofing project meets the qualifications for a commercial roof tax deduction. Contact us today for a free consultation and find out why our customers stay with us for the long run.