Most businesses are conscious of finding ways to improve their tax situation through capital improvement spending, employee training and charitable giving. But what many overlook is their roof as a means of improving their tax situation. With education and a good roof maintenance plan, your shade and shelter can work for you, not against you.
According to Jim Rosa, a tax principal with Hill, Barth & King LLC of Boardman, Ohio, many shopping center owners don't realize that a new roof is a capital cost that is depreciated for 39 years under current IRS regulations. But most roofs don't last that long, so a company is taking an expense a lot longer than the usefulness of the product.
“Roofs on new construction, which are primarily rubber roofs, usually last only 10 years before they either need to be replaced or at the very least repaired,” Rosa says.
“Even if you are fortunate enough to have a longer-lasting roof, chances are you are deducting the cost over a much longer time period than it provides value to your company.”
Considering your options
When your roof begins to deteriorate, you have the option of replacing it or fixing the problem areas. Replacing the roof is obviously expensive, and you add another 39 years over which to deduct the replacement cost.
Although the cost of the old roof can be deducted, many companies continue to depreciate it because they don't realize they can take the deduction or because inadequate information is available about the cost of the old roof.
“The object here should be to have a functional roof system that lasts for as long as you are paying for it,” Rosa says. “Therefore, we recommend that companies find a roofing solution that provides value for their dollars.”
Since there is a great deal of labor and expense in tearing off an old roof and replacing it, many companies decide to repair their roof. Options include everything from patching to high-end surface coatings and adhesives — most of which may be expensed, provided they are truly maintenance in nature and don't extend the life of the roof.
Rocco Augustine, CPA and vice president of Simon Roofing, says one alternative is Simon Roofing's Roof Life Extension System, an alternative to traditional re-roofing. The product is carefully engineered to provide a minimum of 10 years of roof-warranted protection, with the option of renewing the system in year 10 for an additional five years, as well as the opportunity to renew again in year 15 for an additional five years.
Essentially, owners receive the option of a 20-year extendible roof, yet they don't have to pay until they decide. “In today's volatile market, you don't want a big up-front expenditure for roof replacement if you plan on selling a property soon, nor do you want a cheap fix that could jeopardize a future sale,” says Anthony Vross, executive vice president for Simon Roofing.
With careful research and investigation, up-front investment can be as low as $2.25 per sq. ft., freeing up assets that can be used for a better return today.
In addition to a smart, low investment, variable costs can be turned into fixed costs as owners are able to lock in their future rates, as low as $0.75 per sq. ft., at today's prices.
Finally, to optimize your investment, it may be worth looking into a system that can be transferred to the new owner if the building is sold.
Suzanne Vail is an Atlanta-based writer.
Roof repair checklist
Is your roof currently in need of repair?
Saving money by not repairing your roof can actually cost you more money in the long run if the elements damage the interior of your building or deteriorate your existing structure.
Repair or replace?
In making this decision, you need to look at whether extending your existing roof system at a fixed-price or repair is more economically feasible than replacement. This can be done by applying the principles of “Life Cycle Costing.”
This principle establishes the estimated useful life of your roof system divided by the total investment. Other questions that apply: How long are you going to keep the building? Can you afford a capital expenditure? Are you going to have a renovation that might affect your new roof system?
How can you control your roof repair expenses?
The first thing to do is have your roofing company lump sum your repair cost before you authorize the repair. This will take the mystery out of “Time and Materials” billing.
Also, ask your roofer for a guarantee on the repair. The Internet has provided a means for tracking your repairs and developing a database of costs.