Can You Claim Bonus Depreciation for a Roof Replacement?

Replacing a roof on a commercial or rental property is a significant expense, and understanding its tax treatment is crucial. Bonus depreciation allows businesses to deduct a large portion of qualifying asset costs immediately rather than spreading deductions over several years. However, not all improvements qualify.

Tax rules on bonus depreciation are complex, particularly when distinguishing between repairs, replacements, and qualified improvements. Understanding these differences determines whether a roof replacement qualifies for an immediate deduction or must be depreciated over time.

Qualified Improvement Criteria

For a roof replacement to qualify for bonus depreciation, it must meet the definition of Qualified Improvement Property (QIP) under the Internal Revenue Code. QIP includes interior, non-structural improvements made to a commercial building after it has been placed in service. The Tax Cuts and Jobs Act (TCJA) of 2017 intended for QIP to have a 15-year recovery period, making it eligible for 100% bonus depreciation. However, a drafting error mistakenly assigned QIP a 39-year life until the CARES Act of 2020 corrected this issue retroactively to January 1, 2018.

Despite this correction, a roof replacement does not qualify as QIP because it is considered a structural component. The IRS defines structural components as essential parts of a building’s operation, such as walls, floors, and roofs. Since QIP excludes structural components, a new roof must be depreciated over time as a building improvement.

Depreciable Life and Method

The IRS classifies a roof replacement as a nonresidential real property improvement, requiring depreciation under the 39-year straight-line method. This means the cost is deducted in equal annual amounts over nearly four decades.

Straight-line depreciation is mandatory for nonresidential real property improvements, so accelerated methods like double-declining balance cannot be used. The annual deduction is calculated by dividing the total cost of the roof by 39. For example, a $100,000 roof replacement results in an annual depreciation expense of approximately $2,564.

In some cases, a roof replacement may qualify for Section 179 expensing, allowing businesses to deduct the full cost in the year it is placed in service, subject to annual limits. As of 2024, the Section 179 deduction cap is $1.22 million, with a phase-out beginning at $3.05 million in total qualifying purchases. However, Section 179 is only available to businesses with taxable income and does not apply to rental properties, limiting its use for real estate investors.

Distinguishing Repairs vs. Replacements

The IRS differentiates between repairs and replacements based on whether the work restores the roof to its original condition or improves it beyond its previous state. Repairs are routine maintenance that keeps the property in working order without materially increasing its value or extending its useful life. These expenses are generally deductible in the year they are incurred under Section 162 of the Internal Revenue Code.

A replacement, however, is classified as a capital improvement because it substantially prolongs the roof’s lifespan, enhances its functionality, or adapts it to a new use. This means the cost must be capitalized and depreciated over time rather than deducted immediately. Patching leaks or replacing a small section of shingles typically qualifies as a repair, while installing a completely new roofing system with upgraded materials is considered a replacement.

The IRS applies the “Betterment, Adaptation, or Restoration” (BAR) test under Treasury Regulation 1.263(a)-3 to determine whether an expense must be capitalized. If the work corrects a pre-existing defect, adapts the roof for a different use, or restores it to a like-new condition, it must be depreciated. Courts have also ruled that widespread roof replacements constitute capital expenditures rather than deductible repairs.

Claiming Bonus Depreciation

While bonus depreciation allows an immediate deduction for certain assets, roofing expenditures typically do not qualify due to classification rules. However, some components of a roof replacement may be eligible if they are considered separate assets rather than part of the building structure. For example, installing an energy-efficient HVAC system, skylights, or solar panels as part of a roof upgrade may qualify for accelerated depreciation under different tax provisions.

Solar energy property can qualify for the Investment Tax Credit (ITC) under Section 48, allowing businesses to claim a percentage of the installation cost as a credit against tax liability.

Another potential avenue for accelerated depreciation is cost segregation studies, which break down building improvements into different asset classes. This allows businesses to reclassify certain components into shorter recovery periods. A cost segregation study may identify portions of a roofing project, such as insulation improvements or specialized drainage systems, that can be depreciated over five, seven, or 15 years instead of the standard 39-year schedule. Assets with a recovery period of 20 years or less remain eligible for bonus depreciation, meaning a well-documented study could unlock substantial tax savings.

Recordkeeping

Proper documentation is necessary when capitalizing a roof replacement to ensure compliance with IRS regulations and support depreciation deductions. Businesses should maintain records that clearly identify the cost, date of service, and purpose of the expenditure, distinguishing it from routine maintenance.

Invoices, contracts, and receipts should be retained to provide a breakdown of materials, labor, and additional costs. If a cost segregation study is conducted, the final report should be included in tax records to justify any reclassification of components into shorter recovery periods. Businesses should also document any Section 179 elections or bonus depreciation claims on their tax filings, ensuring that supporting schedules and forms, such as Form 4562, are completed accurately.