If you own commercial property in NY, NJ, CT, MA or the surrounding area, you’ll know how expensive maintaining, repairing or installing a new roof can be. Fortunately, those costs can be considered overhead, which means you may be eligible for certain tax deductions. This can mean less financial burden when planning and budgeting for taxes this year. The following are some tax tips for commercial roofs you should keep in mind in 2023.
Can I Deduct the Betterment, Restoration, or Adaptation of My Roof?
You’ll want to write off any work which adds value to your building (betterment), restores your structure to its original condition (restoration), or customizes it for a different use (adaptation). Previously, these items were deprecated over a certain number of years following the work. This depreciation was included if you had:
- Replaced your old BUR roof – If you installed a new single-ply membrane, then you were considered to be upgrading your roof and adding value.
- Restored the condition – If your roof experienced wear and tear and you had a commercial roofer restore it.
- You replaced your roof – If you replaced your existing roof with a usable patio, you’d customize it for additional use.
However, under Section 179 of the recently passed Tax Cuts and Jobs Act(TCJA), you can immediately expense the cost of this type of roof work in the year it was performed if you qualify. Just keep in mind that there are limits on these costs, which include the following:
- The maximum amount you can expense is now $1.16 million (one million, one hundred-sixty thousand dollars)
- The phase-out threshold has increased to $2.89 million
These limits are effective if you’ve bought, financed, or leased new or used equipment and put it into service by midnight on December 31, 2023. To claim the deduction, use Form 4562.
Many commercial building improvements qualify for Section 179, including roofing improvements to non-residential facilities, roofing repairs, venting, waterproofing, and even entire roof replacement projects on existing buildings.
Can I Deduct Maintenance Costs?
You can fully deduct any routine maintenance, from minor roof repairs to annual roof inspections, in the year your roofing contractor did them. The IRS defines routine commercial roof maintenance as the following:
- Repairs resulting from regular wear and tear
- Repairs resulting from wear and tear caused by your trade or business
- Repairs that are needed to keep your commercial property in its normal condition and operating efficiently
- Repairs that were required more than once during ten years of class life.
Energy-Efficient Roofs
179D Deduction: Energy Efficient Commercial Buildings Deduction (also known as the EPAct Deduction) enables building owners of commercial buildings to claim a deduction. If the building needs to be at least 25% more energy efficient compared to the model reference building, the deduction will be $0.50 per square foot. Every percentage point above this number will result in an increased deduction by $0.02 up to a maximum of $1.00 per square foot. The deduction is only applicable to energy-efficient properties.
The 179D deduction allows taxpayers to claim a deduction for installing qualifying systems and buildings. The following projects may qualify for 179D:
- Newly constructed buildings
- Additions to existing buildings (HVAC, lighting, or building envelope upgrades)
- Renovations in existing buildings
A minimum threshold must be met for a building or building system to qualify. Once qualified, energy savings are allocated on the incentive scale, up to $1.00 per square foot for each measure.
Here is the way a building or building system can qualify for the 179D deduction:
Up to $0.50 per square foot for each building system that exceeds energy reduction thresholds compared to the applicable ASHRAE standards: HVAC, lighting, and building envelope.
The 179D commercial building energy efficiency tax reduction can make your energy-saving project possible this year. Take advantage of these significant cost-saving advantages.
Consider these general tax tips, but consult with a local tax professional to ensure you qualify. For commercial roof services in the Tri-State area, contact us at Vanguard Roofing today! We have proudly served customers since 1972, and our friendly staff is always happy to answer questions regarding any of our services.
