Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Tax question regarding new roof on rental house
Old 03-01-2017, 06:09 PM   #1
Thinks s/he gets paid by the post
Cobra9777's Avatar
Join Date: Jul 2012
Location: Texas
Posts: 2,382
Tax question regarding new roof on rental house

In 2015, I replaced the roof on one of my rentals. There was no insurance claim, it was just very old and leaking. I capitalized the cost and began depreciation in mid 2015.

In 2016, we had a hail storm which damaged the roof. Insurance claim paid 100% of the cost to replace the roof (deductible was covered by contractor). This roof was quite a bit more expensive than the old one, but since there was no cost to me, I was not planning to capitalize anything in 2016 with regard to the new roof.

Question: Can I just keep depreciating the old roof and ignore the new roof and insurance proceeds? Or do I have to retire the old roof as a casualty loss (offset with insurance proceeds), and then capitalize the new roof after reducing it's basis by the amount of net insurance proceeds?

Based on a quick scan of Pub 457, I think the latter is the correct approach. But because the insurance proceeds and the cost of the new roof are the same, this would just transfer the adjusted basis of the old roof to a new asset record and restart depreciation. In effect, no difference vs continuing to depreciate the old roof, except I suppose the useful life is extended by one year.

Plus, I just spent two hours wrestling with TurboTax to try and get it to link up the casualty loss and insurance proceeds with the retirement and replacement of the rental asset... to no avail. So, I'd like to just go undo all that stuff and take the easier path if that's advisable.

Retired at 52 in July 2013. On to better things...
AA: 55% stock, 15% real estate, 27% bonds, 3% cash
WR: 2.7% SI: 2 pensions, some rental income, SS later
Cobra9777 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-01-2017, 08:58 PM   #2
gone traveling
Join Date: Mar 2017
Posts: 1
Just keep depreciating the old roof.

If the insurance reimbursement did not exist, you would write off the old roof and start depreciating the new roof. Since there is no new cost to depreciate, essentially the new roof is a continuation of the old roof.
Planning2 is offline   Reply With Quote
Old 03-01-2017, 09:45 PM   #3
Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,441
AFAIK a new roof paid by insurance is the same as a roof paid for by you. Insurance did not pay for a new roof but rather for the loss of the old. You spent the money on the new roof and can treat it for tax purposes in that fashion.
GrayHare is offline   Reply With Quote
Old 03-01-2017, 10:45 PM   #4
Jerry1's Avatar
Join Date: Nov 2014
Posts: 5,578
Originally Posted by Cobra9777 View Post
Based on a quick scan of Pub 457, I think the latter is the correct approach.
You are correct, that is the correct approach. However, let's look at this from a practical matter. Let's say you do get audited and choosing to go the easy route (depreciating the old roof) is found to be incorrect. What will the IRS do?

They will force you to do it correctly and since the dollar difference will be zero or at least immaterial, there will be no significant penalty. In fact, since the new roof was "quite a bit more" than the old one you're short changing yourself by taking the easier path.
Jerry1 is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Tax Question regarding 529 distribution BBQ-Nut FIRE and Money 13 02-20-2015 09:07 AM
New roof or no new roof, that is the question MichaelB Other topics 51 05-14-2014 08:18 PM
Has anyone on this forum put a metal roof on their house? Mulligan Other topics 43 11-06-2013 04:24 AM
Question regarding estimated tax payments joecaf53 FIRE and Money 7 01-02-2013 12:43 PM
Question about a drippy roof Nords Other topics 7 08-11-2009 10:42 AM

» Quick Links

All times are GMT -6. The time now is 05:02 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.