The Tax Cuts and Jobs Act expands eligibility for full expensing to nonresidential roofs as of Jan. 1, 2018. Previous law allowed the cost of roof improvements to be deducted from taxable income through depreciation over time. The new law allows the cost to be deducted in full immediately! This is a fantastic improvement for small businesses across the country!
The logic behind allowing businesses to deduct expenses from taxable income is to help them produce more of their goods or services that people want to buy. Deductions aid this by reducing the cost of inputs into production. For example, if a company can deduct the cost of new office computers, the company can produce its goods and services at lower cost, which allows the company to pass savings onto its customers as well as provide additional products for new customers.
The new tax law increases the power of this effect by shifting deductions for roof improvements from depreciation over time to immediate.
How is the shift from depreciation to immediate expensing an improvement?
Let’s say you spend $10,000 today. Are you better off if you can deduct that entire sum today or if you deduct small portions of it over a period of many years? In most cases you want to deduct the $10,000 in full now because your money is worth more today than the same amount is worth in the future. Today’s money has investment earnings potential and future money loses value to inflation. When your deduction of the $10,000 is not immediate, it means the true deduction is less than $10,000. There is a caveat to this: if you expect your future income to increase and you expect to pay a higher tax rate at that time, depreciation can make you better off than immediate expensing since depreciation can allow you to reduce taxable income when at higher rates.
Up until the passage of the Tax Cuts and Jobs Act, businesses were unable to immediately expense improvements to roofs, fire protection systems, and heating and cooling systems. Now treatment is fairer, allowing businesses to opt to immediately expense roofing costs or recover the costs over time through depreciation. Immediate expensing of nonresidential roof improvements will allow many companies to more efficiently provide for their customers.
What other ways do you think tax treatment of roofs could be improved?
Your roof is one of the most important investments you can make! Call us today for your free estimate at 253-445-8950 or fill out our quick estimate form! CHASE CONSTRUCTION NORTH WEST, INC. has been MASTER ELITE® with GAF since 2011, and we would love to help set you up on the path of long term success!