A common expenditure for real estate investors is repairing or replacing a roof on a rental property. When you purchase a rental property, you split apart the land value and building value of the purchase price and depreciate the building portion. The original building asset includes a roof. When you replace or repair a roof, you add the cost of the new roof as an asset to be depreciated and end up with two roofs being depreciated. Tax expert Greg White presents his “mystery of the two depreciating roofs” in a tax seminar. He illustrates a common accounting error, where both a new roof and the disposed-of old roof remain on a rental property’s depreciation schedule, creating phantom depreciation. The solution involves correctly applying a partial asset disposition: electing on your tax return to remove the old roof’s cost and recognize a potential loss before depreciating the new asset. Along with the partial asset disposition of the old roof, you are allowed to take some of the disposal costs as an immediate expense (reduce the new roof cost basis by the disposal expense).
Let us help you solve the mystery of the two depreciating roofs in your real estate investments.
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Reducing Taxes – Increasing Wealth
Please understand that I cannot give you specific investment or legal advice, just guidance in these areas, and you should consult a professional licensed in these areas for specific advice before making any final decisions.
