New depreciation schedule for commercial roofs, May 2005
Proposal
NRCA proposes that Congress should amend section 168 of the Internal Revenue Code
to provide a shorter, more realistic recovery period for the depreciation of commercial
roof systems.
Background
The bipartisan
Realistic Roofing Tax Treatment Act of 2005 (H.R. 1510) was
introduced by Rep. Mark Foley (R-Fla.) and Rep. Stephanie Tubbs Jones (D-Ohio) April
6 and would reduce the depreciation recovery period for commercial roof systems
from the present 39-year schedule to a more realistic 20-year period.
Prior to the 1980s, separate building components could be depreciated at different
rates, but in 1981, Congress eliminated component depreciation and put in place
a general depreciation period of 15 years for all building components. In 1993,
the depreciation recovery period for nonresidential property was extended to 39
years to raise additional revenue.
The current 39-year depreciation period is not a realistic measure of the average
life span of a commercial roof and serves as a disincentive for building owners
to replace failing roofs. If an owner replaces a roof before 39 years have elapsed,
the owner still must carry that roof on the books even though it no longer exists.
The Treasury Department's Report to the Congress on Depreciation Recovery Periods
and Methods (July 2000) corroborated this quandary, finding "... a 'cascading' effect,
where several roofs are being depreciated at the same time even though only one
is physically present."
A recent study by the industrial research firm Ducker Worldwide determined the current
aggregate commercial roof life span is approximately 17 years, less than half the
depreciation period. Ducker Worldwide also estimates that a shortened schedule would
stimulate economic activity, generating 40,000 new jobs.
Policy benefits
Adoption of a new class life would satisfy important policy goals—energy conservation
(the Ducker Worldwide study found that 90 percent of building owners choose more
energy-efficient systems when they replace their roofs); job creation; tax relief
for the U.S. manufacturing sector; and a growth impetus for the construction industry.
With a new depreciation schedule for roofs, business owners would no longer put
off needed roofing work, opting instead to purchase newer, more efficient systems.
And if the number of years over which one depreciates property and the number of
years over which a property deteriorates are commensurate, the business owner would
have strong incentive not to risk structural damage to save a few dollars.
Because a 39-year depreciation schedule for commercial roofs makes little economic
or environmental sense, NRCA proposes allowing building owners to depreciate commercial
roofs over a 20-year period. The change would address the issue of the appropriate
recovery period and allow for the recognition of legitimate losses. NRCA urges Congress
to pass H.R. 1510.
(May 2005)