Roof Replacement and Tax Savings: Exploring the Deduction Options

Replacing a roof is a significant undertaking for the average homeowner. Few, if any, home renovation projects involve a greater financial outlay than a roof replacement. However, replacing a dilapidated roof is one of a homeowner’s most essential responsibilities. Many homeowners have the assumption that home improvements (such as installing a new roof) offer particular tax advantages (including tax deductions and credits). Unfortunately, when answering the question, “Is a roof replacement tax deductible?” the answer is generally no.

What Qualifies As A Home Improvement?

A home improvement (i.e., capital improvement) is a permanent upgrade or enhancement to substantially increase a home’s property aesthetic, performance, and value. The project must permanently extend the useful life of the house. Although most home improvements do not qualify for federal or state tax benefits, with the passage of the Inflation Reduction Act, certain upgrades offer legitimate tax incentives worth considering.

Aerial image of a new home in Washington with an asphalt shingle roof installed by SE&S Roofing.

The Tax Benefits Of Home Improvements

Through the Inflation Reduction Act, upgrades to a residential home using specific energy-efficient products may qualify the homeowner for one or more federal tax credits between January 1, 2023, and December 31, 2023. These tax incentives benefit qualifying homeowners who make improvements that include green-energy items.

This program aims to reward conscientious homeowners for actively pursuing alternative energy sources, reducing reliance on fossil fuels in the process. Annual purchase limits apply. However, a homeowner can take advantage of particular federal tax credits each year if they qualify under the established guidelines.

A new home near Arlington, Washington with a new shingle roof courtesy of S&S Roofing.

Is A Roof Replacement Tax Deductible?

Although a roof replacement does not provide the homeowner with a tax deduction, particular upgrades to a home’s roofing system may generate a tax benefit in the form of a federal tax credit. In particular, two credits are worth noting:

Insulation Tax Credit

The purchase and installation of bulk insulation (including batts, blow-in fibers, expanding spray, rigid boards, and rolls -as well as products that reduce air leaks (canned spray foam that air seals, caulk that air seals, house wrap, and weather stripping) will help the homeowner earn a credit. They can qualify for a claim of up to 30% of the product cost to a maximum of $1,200 for any combination of home envelope improvements.

Windows And Skylights Tax Credit

Purchasing and installing exterior skylights that meet the Energy Star Most Efficient criteria (recognizing the most efficient products among the many products that otherwise qualify for the Energy Star program) will afford a homeowner access to a claim of up to 30% of the product cost. This percentage is suitable for a claim of up to a maximum of $600 (the amount of which is considered a home envelope improvement) as a federal tax credit.

Note that a home envelope improvement consists of qualifying purchases of the following products: windows, doors, skylights, insulation, electrical, furnaces, boilers, and central air conditioners. For more information, homeowners are encouraged to speak with their tax advisors.

Does A Roof Replacement Offer Other Tax Incentives?

Replacing an existing roof and upgrading it to a “new and improved” model may qualify as a home improvement for tax purposes. Assuming the new roof meets this particular criteria, a homeowner could realize an increase in the tax basis of their home.

When a homeowner purchases a home for a specific amount, the price paid is considered the basis. Every home improvement or capital investment made to benefit the home or property changes the basis, transforming into the adjusted basis.

Assume a homeowner acquires a home for $300,000. That purchase amount of $300,000 is the homeowner’s basis in the house. If the homeowner sells the home 30 years later for $700,000, the difference of $400,000 represents the capital gain. If the capital gain exemption is $250,000 at the time of sale, the homeowner would need to pay a capital gains tax on the $150,000 (i.e., the difference between $250,000 and $400,000).

A calculator with a pen and a pair of glasses laying on a tax credit spreadsheet.

Instead, assume the homeowner buys a home for $300,000 (the basis). If they make a qualified home improvement of $100,000 during their home ownership, they increase the basis (the adjusted basis) to $400,000. If the homeowner sells the home 30 years later for $700,000, the difference between the sale price and adjusted basis ($300,000) represents the capital gain. Only $50,000 would be subject to a capital gains tax.

How To Hire A Roofing Professional To Replace A Roof

Installing a new roof is a significant undertaking. If you own a home, you must do your homework before selecting a roofing contractor to remove and replace your roof. Your safest bet is identifying a knowledgeable, experienced, licensed roofing company.

For homeowners in the Pacific Northwest, S&S Roofing delivers extensive expertise in residential roofing to ensure homeowners receive exceptional results. To learn more about our roofing services or to schedule a free, no-obligation appointment, contact us today.