How is a roof depreciated on residential rental property?
The 80 percent test
A building is residential rental property if 80 percent or more of its gross rental income is from dwelling units. A house or duplex rented to long-term tenants qualifies. A building with a ground-floor shop earning more than 20 percent of the rent may not. If you live in part of the building, the rental value of your unit counts toward the test.
Allocating when you live there too
If you own a duplex and live in one side, only the rental half of a new roof is depreciable. The personal half adds to your basis instead.
Repairs versus replacement
- Fixing a few shingles, a pipe boot, or flashing: usually a deductible repair.
- Replacing the whole roof covering: usually a capital improvement depreciated over 27.5 years.
- Gray areas, like replacing a large section, depend on the facts and the IRS tangible property rules.
When a storm caused the replacement
The insurance payment and the old roof's remaining basis affect the tax result, and any gain may be postponed by replacing the property. Keep the claim estimate, payment letters, and invoice together for your preparer.
General information only, not tax advice. On the claim side, see ACV vs RCV and recoverable depreciation on a roof.