The following contains information about tax deductions meant only for educational purposes. Please see a professional tax accountant to make sure what’s said here is applicable to you.
Reroofing your business might seem daunting given it’s a process that takes several days. Fortunately, there’s a major financial benefit that commercial property owners can take advantage of: a federal tax writeoff.
Most business owners know that federal tax rates for individuals and businesses were cut in 2018 thanks to the Tax Cuts and Jobs Act passed in 2017. What they might not know is that Congress also included a provision that includes major benefits for reroofing commercial properties.
The provision amended Section 179 of the U.S. tax code for deducting expenses. It increased the maximum deduction on federal income tax that a business can take for capital expenses in the initial year of purchase. So rather than having something like your roof be an expense you deduct via depreciation over multiple years, you can now deduct the full price of such a purchase in the same year you paid for it.
How the Section 179 tax deduction works
Let’s illustrate how this works with an example of Ted, who runs Computer Warehouse. We’re going to keep the math very simple by assuming the following numbers for this fictional company:
- Ted will make $1 million in profit before depreciation and tax (or EBITDA) at the end of this year.
- Ted’s company is taxed at a flat rate of 20%.
- Ted paid for a new roof that cost $100,000 (Ted gets a lot of sales, so he has a big store)
- The depreciation for the roof is $10,000 over 10 years.
To figure out Ted’s tax burden, you’d deduct the $10,000 in depreciation to get $,990,000. Assuming there are no other things to deduct like interest or amortization, his tax burden would be $198,000 ($990,000 * 20%).
Normally, the roof would be considered a capital expenditure that wouldn’t be deducted before taxes (minus a few technical provisions, but we’re trying to keep it simple). However, thanks to the amendment to Section 179, now he could deduct the full cost of the roof up the year he pays for it.
So Ted would subtract $100,000 from $1 million to get $900,000 in taxable income. Now, his total tax burden is $180,000 ($900,000 * 20%). Ted gets to save $18,000 this year he otherwise wouldn’t be able to.
What’s also helpful is he now can write off the cost of his old roof. He’ll subtract all the depreciation he’s taken over the years from the old roof’s cost and get to write it off as a loss.
As the old saying goes, “Cash now vs. cash later.” That $18,000 being saved up front will allow Ted to invest or spend it however he wants. He was only saving $2,000 per year before, but now that he’s got an additional $18,000 up front he could spend more on marketing to boost sales so that his revenues far exceed what they would be without it.
That’s the main reason so many businesses are happy with this change, and why they’re opting for new commercial roofs. Fortunately, they don’t have to settle for an overly expensive roof that only lasts 10 years like Ted. We specialize in metal, which can last anywhere from 20-50 years and is perfect for the stormy weathers of Florida.
We recommend you consult with a tax professional. This article is primarily for education purposes and not meant to be taken as official consultation.
That said, if you roof with us, you can save big, in more ways than one.