New depreciation schedule for commercial roofs, March 2004
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
The bipartisan Realistic Roofing Tax Treatment Act of 2003 (H.R. 3310) was introduced
by Rep. Mark Foley (R-Fla.) on Oct. 16, 2003, and would reduce the depreciation
recovery period for commercial roof systems from the present 39-year schedule to
a more realistic 20-year period. On Sept. 30, Sen. Jim Bunning (R-Ky.) introduced
companion legislation (S. 1679) in the U.S. Senate.
The current depreciation period for roofs is 39 years, as it is for all section
1250 real property. 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 recovery period for nonresidential property was extended to 39 years
in order to raise additional revenue. Because of the current 39-year depreciation
period, business owners often delay, or forego altogether, roofing expenses for
their businesses because they tend to be costly, and the current depreciation schedule
discourages the assumption of such an expense. It is a disincentive for building
owners to replace non-performing roofs because replacing failing roofs before 39
years have elapsed means carrying on the books the burden of roofs that no longer
The current 39-year depreciation period is not a realistic measure of the average
life span of a commercial roof. A recent study by Ducker Worldwide, a leading industrial
research firm, determined that the current aggregate commercial roof life span is
approximately 17 years, less than half of the depreciation period. The inability
to recognize a loss on the replaced component places taxpayers in the position of
having to continue depreciating replaced or abandoned components because tax depreciation
is slow relative to economic depreciation.
Adoption of a new class life would satisfy three important policy goals: enhanced
energy efficiency (data indicates that 90 percent of building owners choose more
energy-efficient systems when they replace their roofs); tax relief for America'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
roof 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. 3310 and S. 1679.