Is a New Roof a Capital Improvement or a Repair?

Q: What types of expenses are considered repairs?

Expenses considered repairs typically involve routine maintenance or minor fixes that do not enhance the property's value. Examples include patching a roof, fixing leaks, or repainting walls. These costs are generally aimed at maintaining the property's current condition rather than improving it significantly.

Full question:

An Illinois trust has granted use of a residential property to the trustee who is responsible for all 'repairs and maintenance, taxes and insurance' on the property. A capital improvement fund is also provided for. The roof is 30 yrs. old and should be replaced. Is this a 'repair and maintenence' cost or a 'capital improvement'?

Category: Landlord Tenant
Subcategory: Repairs
Date: 04/07/2025
State: Illinois

Answer:

Typically, a new roof is a capital improvement. A capital improvement, in and of itself, is not affected by either the dollar amount of, or the percentage amount of, any capital expenditure. In general, a capital improvement is defined either by contract or by various state and federal laws, but capital improvement generally is defined as a non-recurring expenditure or any expenditure for physical improvements, including costs for: acquisition of existing buildings, land, or interests in land; construction of new buildings or other structures, including additions and major alterations; construction of streets and highways or utility lines; acquisition of fixed equipment; landscaping; and similar expenditures. It may mean any change, alteration, rearrangement or addition to existing facilities. It is also new construction, acquisition or improvements to sites, buildings, or service systems.

In general, neither the dollar amount nor the percentage amount of a capital improvement is relevant in determining whether a particular expenditure upon an improvement to real property is either an ordinary repair or a capital improvement. That said, the more closely an expenditure approaches a total replacement cost of an improvement to real property, then the greater the likelihood becomes that that expenditure may be a capital improvement instead of an ordinary repair.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

What is the difference between a repair and a capital improvement?

A repair is typically a maintenance activity that restores a property to its original condition without significantly enhancing its value. In contrast, a capital improvement is a major upgrade or addition that increases the property's value or extends its useful life. For example, replacing an old roof is generally considered a capital improvement because it is a significant expense that enhances the property's overall value.

Can a capital improvement be deducted from taxes?

Capital improvements can sometimes be deducted from taxes, but the rules vary by state and the specific circumstances. Generally, these improvements may increase the property's basis, which can affect capital gains tax when selling the property. It's advisable to consult a tax professional to understand the implications for your specific situation.

Are there specific guidelines for determining capital improvements?

Yes, specific guidelines help determine if an expenditure qualifies as a capital improvement. Key factors include the cost, the nature of the work, and whether it adds significant value or extends the useful life of the property. If the work is extensive and costly, it is more likely to be classified as a capital improvement rather than a simple repair.

What types of expenses are considered repairs?

How does the age of a roof affect its classification as a repair or capital improvement?

The age of a roof can influence its classification. A roof that is significantly aged and requires replacement is more likely to be viewed as a capital improvement. In contrast, minor maintenance on a newer roof may be classified as a repair. The overall cost and extent of the work are also critical factors in this determination.