Tax Benefits of Commercial Roof Maintenance for Property Managers

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Tax Benefits of Commercial Roof Maintenance for Property Managers

A Must for Property Managers

Property managers benefit greatly from being informed and up-to-date on the tax benefits of commercial roof maintenance. The Internal Revenue Service (IRS) allows the following to deduct expenditures for upkeep and repairs of properties and equipment.

  • Sole Proprietors
  • Rental Property Owners
  • All Businesses (regardless of size)

The IRS released the new policies that took effect in 2014. Said rules focus on the mode of deducting maintenance and repair costs. Expenses fall under the category of capitalization and depreciation over the years if the repair brings back the property to its original condition or modifies the real estate asset for a different use. The IRS maintains that expenses for maintenance or renovation (not classified as improvements, adjustments, or restorations) will be deducted entirely upon full payment of that specific cost.

Restoration and Tax Benefits

Roof restoration refers to maintenance expenditure, while replacement remains a capital expense. The business owner pays less tax on upkeep by availing the current deduction, opposed to capitalizing the cost and recovering it using depreciation. The federal legislation stipulates that commercial roofs depreciate within 39 years. A business owner should extend the useful lifespan of the roof since this fixture has an average existence of only 20 years.

Commercial roof maintenance results in tax benefits. The restoration gets funding through maintenance instead of capital budgets which result in a clear tax advantage. With the classification of maintenance cost, roof restoration will allow any owner to charge the money spent right away. More benefits come in the form of tax rebates and credits for energy-efficient enhancements depending on the location of the building. Improvements include LEED point contributions and Energy Star qualifications.

LEED refers to the rating system known as Leadership in Energy and Environmental Design created by the USA Green Building Council or USGBC to assess the environmental performance of a building and promote market transformation leading to sustainable design. The Energy Star product label indicates that an energy efficient product has been used. An Energy Star partner meets the criteria of certified, independently-tested, and is verified through the National Fenestration Rating Council (NFRC). NFRC ratings conform to the guidelines that the US Environmental Protection Energy (EPA) enforces.

Tax Strategies

Tax strategies apply when commercial building owners plan or have earned building-related expenses within the past few years. Portions of IRS policies may help building owners find out if such expenditures relate to routine maintenance to a current long-life element, capitalized improvement, or betterment (enhanced value of the commercial property). Work classified as regular maintenance or repair can be expensed that same year the completion of work took place.

The complication arises in finding out whether the cost belongs to either of these three under existing rules:

  • Standard maintenance
  • Improvement
  • Betterment

Stakeholders realize the complexity of said regulations which indicate the need for engineering as well as accounting proficiency. Commercial building owners must prepare a comprehensive Tangible Property Study for determining the following factors:

Future expenses need to be expensed during the year of actual spending or capitalization over the long-term period
Building-related costs during the previous year fall under repair and maintenance
The outstanding depreciable value (eligible for depreciation treatment such as real estate) in a long-life setting resulted in abandonment

The correct Tangible Property Study establishes the nature of work implemented, computes tax benefits, puts a value on the abandoned property, and ensures audit protection.

Deductions versus Capitalized Costs

Regarding maintenance or repairs, determine if there are deductions against the capitalized alternative.

  • Check the invoice for an expense carefully.
  • Determine the outlay's purpose. Use the BRA process (Betterment, Restoration, or Adaptation).
  • Calculate the total expense.
  • Compare each item on the invoice if this comes out equal to or not more than $2,500.
  • Find out if the amount equals or remains below $10,000. Or, the amount remains equal or less than two percent of the unadjusted base of property for repair.
  • Identify the type of repair.
  • Determine any capitalized costs (https://www.investopedia.com/terms/c/capitalizedcost.asp). Come up with a depreciation schedule to write off the repair outlay.

As a rule, the classification turns out as a repair if the percentage of the replaced primary component results in lower than 30%. If the result becomes higher than 40%, the category becomes an improvement. Assessments depend on the project's circumstances.

Multiple Roofing Concerns

A variety of roofing problems can turn into a significant problem. Natural calamities can cause the following issues:

  • Leaks
  • Stagnant or standing water
  • Poor surface runoff coming from storm water
  • Damage to shingles or roof membrane system
  • Clogged drainage systems

Realistic Circumstances

This scenario can become a predicament for startup enterprises or small entrepreneurs because of inadequate funds. Where can the struggling business owner get the money for a substantial roof work? Tax deductions must be a priority, particularly for long-term concerns. To go back, repair along with capital improvement expenditures forms part of the business deductibles.

With the inclusion of repair in business costs, the business proprietor can now adjust the tax base at the end of every fiscal or calendar year. However, the building may need regular renovations to preserve the property in functional condition. The services of an experienced contractor becomes necessary to perform routine roof repairs and maintenance. This sound business practice can save the entrepreneur financial resources in the long-term.

Aside from the concerns mentioned earlier, available deductions for depreciation enables the business proprietor to deduct the outlay of the real property as it gets older. Computations depend on the asset's value as well as improvements conducted. The owner pro-rates the figures from the year of acquisition. Tax deductions make expenses more acceptable knowing the possibility of recovering some costs shortly. Tax specialists can provide advice on how to deal with specific deductions.

With regards to techniques for replacement of roofs in case of inadequate finances, the options include dividing the project into several phases to make repairs and renovations more affordable. Begin with the heavily damaged or deteriorating parts before moving to the least ruined. This allows the business operator to budget according to manageable stages. Repairs facilitate savings, so funds can be allocated later for total replacement.

Understanding commercial roof maintenance and inspections, if done properly, will greatly benefit you during tax time. If your commercial roof needs attention, call your experienced local roofing contractor to determine all available options that best suit your needs.

Topics: Commercial, Tax Benefits, Roof Maintenance, Property Managers