From extensive water damage to old age and roofing materials blown off by strong wind gusts, there’s a range of issues which can lead you to call for roof replacement services. Roof replacement, however, can require a significant amount of time and funding to complete.
Unless you have money lying around, you’ll need to secure funding to cover the cost of your roofing project. Since roof replacement is part of home improvement, you may be wondering if you can deduct the cost of the new roof from your annual taxes. So, let’s delve deeper into the topic of roof replacement financing and deduction to understand your options.
Tax Deduction for a New Roof
It is possible to deduct your roof replacement from your taxes, but you can only do that when you sell your home. Except in cases where you’re installing an energy-efficient roof, you can’t deduct the cost of your new roof at once or in the same year you had the roof installed. A new roof is considered a home improvement, and what it does is add to the cost of your property, which will lower your taxable gain when you sell your home.
Capital Improvements and Your Property’s Tax Basis
A capital improvement is the addition of a permanent structural change or replacement of a substantial portion of a significant building component, which will enhance the market value of the property, adapt it to new uses, or prolong its useful life.
A capital improvement must fix some defects and become a permanent part of the property. Like fixing a leaky roof or sagging gutters, repair and maintenance jobs do not qualify as capital improvements because they keep the property in the same original condition without prolonging its life or adding value.
Some examples of capital improvements include:
- Replacing an entire roof
- Putting an addition on your home such as a pool, deck, or extra bedroom
- Installing a new plumbing system or central air conditioning
- Upgrading the security system
- Renovating a room, such as a kitchen or a bathroom
- Basement finishing
- Rewiring your home
- Paving your driveway
Tax rules allow you to add the expenses of capital improvements to the cost basis of your home, which represents the amount you’ve invested in your property. This means the upgrades can lower the tax you pay on the total profit you get from a home sale. The profit tax exemption is available on the first $250,000 of profit for single filers and $500,000 for joint filers.
Proving Your Property’s Tax Basis
Documenting each element of your home improvement might pay off when it comes time to sell, especially if you’ll live in the house for some time. The original cost can be documented with copies of purchase orders, receipts, purchase contracts, closing statements, and any other documents you receive.
You want to make sure all improvement-related records are not lost, misplaced, or destroyed because you’ll need them to prove the basis of your home. Keep the documents in a safe deposit box or make digital copies and store them online.
Paying for a Full Roof Replacement
When a roof is damaged, either from wear and tear over the years or due to a natural disaster, replacing it is often a top priority. But paying for a new roof is a costly endeavor, which you may not be prepared to pay for out of pocket.
You don’t have to shell out the entire amount for the job upfront, and a reputable contractor will not ask you to do so. It’s customary to pay a deposit before the project is started to make sure there are enough supplies and equipment as needed.
Just because you don’t have the total amount in your rainy-day fund doesn’t mean you should ignore a leaky roof or a roof with missing shingles. A damaged roof cannot protect your home, and putting off replacement will lead to extensive damage, which will put the structural integrity of your home at risk.
The good news is there are financing options available to help cover the cost of replacing your roof, including:
- Personal loan
- Home equity line of credit (HELOC)
- Government-insured FHA loan
- Rebates for energy-efficient roofing
- Cash-out refinance
- Homeowners insurance (if an unforeseen event damaged your roof)
Roof Company Financing
In addition to the mentioned financing options, you may want to consider your roofing company’s payment plans as well. Your roofing contractor will work with a lender to help you manage the cost of the roofing project based on the cost of the roof replacement project and your budget. A roofing contractor might get special interest rates because of volume lending.
Turn to Moss Roofing for quality roof replacement services, as well as roofing financing and insurance claims. Contact us today to discuss your roofing needs and request a free estimate. We serve homeowners in and around Indianapolis, IN.