New depreciation schedule for roofs, September 2003
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 current depreciation period for roofs is 39 years, as it is for all section
1250 real property. Before 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
to raise revenue. As a result 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.
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 the current aggregate commercial roof life span is 17.45
years, less than half of the current 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.
Delaying needed roof repair poses several concerns. First, aging and inefficient,
nonperforming roofs are less energy-efficient than roofs in proper repair. Second,
faulty roofs suffer moisture infiltration, which in turn can lead to permanent structural
damage of a building. And finally, the repair cost for a neglected roof usually
is greater than the cost of the original repair or reroofing estimate-thus, the
tax code is an economic disincentive.
Adoption of a new depreciation class life would satisfy two important policy goals-enhanced
energy efficiency 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 roof systems. And
if the number of years over which a business owner depreciates property and the
number of years over which the 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 roofs
over a 17-year period. The change would address the issue of the appropriate recovery
period for roofs and allow for the recognition of legitimate losses on the retirement
of building components. NRCA urges Congress to amend the Internal Revenue Code to
establish a new depreciation schedule for roofs.