I realize you're not a tax expert. And I know that taxes is not exactly the most interesting topic in the world. But if you're buying a new roof then it's very important that you know about the IRS Section 179 deduction. Why? For two big reasons.
For starters, taking advantage of this deduction for your own business will save you significant money on your taxes and, if you're like most business owners I know, your taxes are your most significant expense.
Second – it's a reason to invest in your property. It's basically an enormous discount on the cost of a new roof.
If you're a roofer then it's just as important that you know about the deduction. Why? Because I'm betting your commercial clients don't know what they need to know about this deduction and explaining it to them will help understand how the price you're charging will be much less than what they'll ultimately pay, once the tax savings have been considered.
So do you know about Section 179? Maybe you do. But here are five things about it that you might not know.
1. If you get a new roof, the Section 179 deduction allows you to deduct the cost of it
If you decide to completely replace a building's new roof you can now take an immediate deduction of up to $1,040,000 in 2020 for the cost of the new roof. It's part of the expanded rules under Section 179 of the IRS tax code after the 2017 tax reform act. Most businesses qualify for this deduction but there are limitations. The $1,040,000 is for a single purchase. You can continue to take deductions for other purchases – be it a roof on another building, for example – but the deduction begins to phase out after a total of $2,590,000 is spent during the year and is completely phased out once you've spent $3,630,000. By the way, the roof has to be used more than 50 percent for business purposes, so make sure you're considering that if you're using a combined commercial and residential property.
2. If you get a new roof you can write-off the cost of the old roof
If you're replacing your existing roof, you can get an additional tax benefit by writing off the cost of your existing roof. That means the amount remaining on your books representing the original cost of your existing roof, less accumulated depreciation, can be taken off your books as a loss. So you're not only getting a deduction for the new roof, but lowering your taxes as a result of any loss from writing off your existing roof.
3. If you get a new roof you can deduct it under Section 179 even if you don't pay for it ... yet
Section 179 will allow you to deduct the cost of your roof as soon as it's put "into service." That means when the work on your new roof is complete and the roof is deemed functioning you can then take the deduction that year. However, the IRS doesn't care if you've actually paid for the roof yet. You might have received a bank loan to help you with the costs or maybe you're deferring payment based on the arrangement with your roofer. So that means that you can take the full deduction and get the tax benefit without incurring any cash disbursements. Be aware, however, that the Section 179 deduction is only limited to your taxable income.
4. You may be able to deduct the cost of your roof repairs under Section 179
If you decide not to get a new roof, you still may be able to deduct the cost of repairing your existing roof. You would have to capitalize and then depreciate any costs that improve the value of a roof. But the IRS defines routine maintenance as something that "keeps your property in a normal and efficient operating condition." So if you're spending money on things like patching a puncture or repairing a skylight, you can generally take a deduction for those expenses in the year they're incurred.
5. Roofs do not qualify for "bonus" depreciation
What is "bonus" depreciation? That's an additional depreciation deduction you can take for capital expenditures that exceed the $3,630,000 limit mentioned above. You can't do it every year, but the 2020 tax year does qualify. Unfortunately roofing expenses do not qualify for this "bonus" depreciation.
I know, all this tax stuff is boring. But knowing how to leverage these rules will save you significant dollars. That's not boring at all. In fact, it's very, very interesting.