Is roof replacement tax deductible?
**Please note that this article does not constitute tax advice, and that you should consult a tax advisor for you specific situaion**
Typically, the only part of a roof replacement that would be tax deductible is the portion that is out of pocket to you.
Since the insurance company pays most of the money, typically the only deduction you can take with your taxes would be the cost to you, and that comes in the form of your insurance deductible. The only tax deductible loss you’ll have, then, would be your insurance deductible.
Now, some insurance policies are different, and you will have to check with your current home insurance policy and provider to confirm for yourself, but most insurance policies on homes are replacement cost value. In that case, your only out of pocked expense is your deductible, and that’s the extent of your loss in terms of taking a tax deduction.
Code Coverage & Replacement Cost
If you happen to have rental property, or sometimes even homeowner policies have waivers or riders, you may have code coverage. Ordinance and law coverage is another term commonly used for code coverage. What this means is that if you have a roof that doesn’t comply with the current building codes, and you don’t have code coverage, you are going to be paying your deductible plus anything necessary to bring it up to code. The insurance company would not then pay for that. There may be 15%, 20% of the policies out there that do include it as a part of your homeowner’s policy as you have to pay extra for it. If that’s the case, and you do have code coverage, then you’re not paying for the upgrade, and it would not be tax deductible.
The other thing is there’s some policies out there, especially on wood shakes, where the insurance company only pays actual cash value. That means the value of the roof when it was destroyed. It’d be like an old vehicle. If you have a vehicle you paid $25,000 for, you’d driven it for four years and it’s worth $5,000, and gets hit by hail, they’re going to pay you $5,000.
With a replacement cost value, they buy you a brand new car, or replace you a brand new roof. With a wood shake roof, most policies out there today, are going to be a situation where the wood shake is being paid at actual cash value, not the replacement cost value. In that case, one would probably want to visit with their tax accountant to find out if the cost that you have to put into replacing the roof over what insurance paid is deductible or not.
Would the total tax deductible amount include bringing it up to code as well?
If you don’t have code coverage, then that would most likely be considered a loss that you incurred.
If you only have an actual cash value policy, the accountant would have to make a determination. If you have a replacement cost value policy, a tax accountant would have to make that determination, because they may say that you were compensated for what you lost.
In essence, with the replacement cost policy, it would not be considered a loss, because you were paid for what it cost to payout. The best thing to do, no matter what your policy is or how much you paid out of pocket for your roof replacement, is to talk with your tax accountant to determine if your out of pocket costs could be deducted or not.March 23, 2016 | Home Improvement Info