If you’re thinking about a roof replacement or are in the process of replacing it, it’s essential to be well-informed on what implications a new roof can have come tax time. If you’re wondering whether a new roof is tax deductible or if any tax benefits come with a new roof, we’re here to help.
Keep reading to learn more about the impact a new roof can have on your taxes.
Editor’s note: We are not providing tax advice. For guidance on your tax situation, you should get in contact with a tax professional.
On this page
- Is a new roof tax deductible?
- What is a home repair?
- What is a home improvement?
- New roof tax benefits
- New roof tax credits
- Is replacing your roof a good investment?
Is a new roof tax deductible?
The tax implications of a new roof will largely depend on whether you are using the property as your primary residence or as a rental property.
If you are replacing the roof of your primary residence, the cost of the new roof is not tax deductible. The IRS classifies a new roof as a home improvement and considers any costs associated with home improvements on your primary residence as non-deductible expenses.
Rental property rules are slightly different. If you replace the roof of your rental property, you still cannot claim it as a tax deduction; instead, you can claim the annual depreciation expense of the new roof. As for repairs, any roof repairs made at a rental property can be written off as a tax deduction.
Before we get into the other tax benefits of a new roof, let’s explore the difference between home repair and home improvement.
What is a home repair?
A home repair is considered a preventative measure to keep your home in good working condition. They are commonly considered maintenance tasks and do not include considerable additions or home upgrades.
Home repairs are considered minor issues that must be resolved to get your home back in working order. Common home repairs include fixing a leaky kitchen pipe, painting a room, or replacing a few asphalt shingles. Any costs you incur while making home repairs will also not be included in your cost basis.
What is a home improvement?
The IRS considers a home improvement whenever a property undergoes a betterment, adaptation, or restoration. In other words, a home improvement project is considered something that prolongs the life or increases the property’s value.
Typical home improvements include remodeling your bathroom, installing a swimming pool, or in some cases, a new roof installation.
New roof tax benefits
While installing a new roof is not tax-deductible, it can still provide you with other tax benefits when you sell your home. With the cost of a new roof being classed as a home improvement expense, you can use it to increase the tax basis of your property. Your tax basis, otherwise known as the adjusted cost basis, is the amount of capital investment in the property.
When you sell your home, your adjusted cost basis is deducted from your sale price to determine your profit. The higher the adjusted basis is, the lower your capital gains tax will be when you sell your home. This means that the money you spend on capital improvements and make back in profit will go straight into your pocket. So, while installing a new roof will not impact your taxes year-to-year, it will benefit you when you sell your home.
New roof tax credits
A federal tax credit is available for new roofs that meet specific requirements. The tax credit is designed to encourage homeowners to make energy-efficient improvements, which is why not all new roofs will qualify.
For your roof to qualify for a federal tax credit, it has to be evaluated as an energy upgrade, with only certain types of Energy Star-certified roofs being eligible.
How do you qualify?
Two types of Energy Star-certified roofs will qualify for this federal tax credit. The eligible roof types include metal roofs with a pigmented coating and asphalt roofs with cooling granules. The pigmented coating will also need to be a certified ENERGY STAR product for the roof to qualify.
How much is the credit?
The Energy Star federal tax credit is worth up to 10% of the cost of the new roof, up to $500 (not including installation cost). While this doesn’t seem like much, it can still help you to reduce your tax burden.
Along with giving you access to a federal tax credit, the cooling properties of Energy Star-certified roofing materials will also help you to save money on your energy bill.
Is replacing your roof a good investment?
Despite the various tax benefits and credits, in most cases, a new roof is only warranted if there are problems with your current one. If your roof is older or leaking, then replacing your roof is a worthwhile investment.
A faulty roof can lower your home’s value, so by replacing the roof, you will at least be maintaining your home’s current value. Plus, if you upgrade your roof to a long-lasting, low-maintenance, or energy-efficient material, you could even see an increase in your home’s value.
