When you get a roofing job done in a commercial or rental property, you’ve no doubt wondered if it will count as a capital improvement. After all, capital improvements can be deducted from your taxes. This is especially the case when you know the job done on your home increases its value. There is one way to tell if your home improvement project counts as a capital improvement and that’s through the BRA Test.
In this post, State Roofing discusses all you need to know about the BRA Test.
The BRA Test
In order for your repair and maintenance project to be deducted from your taxes, you must first have it capitalized. Especially when the repair and maintenance make the property better or allows it to adapt to a new use. The BRA Test (which stands for Betterments, Restorations, and Adaptations) is one way to determine this.
These are the repairs that make an aspect or function of your home better, hence the name. This includes repairs of a pre-existing defect before the property was bought, such as hiring a roofing contractor to fix a damaged roof. Others include defects during the construction of the property, property expansion, increasing the property’s quality, strength, and efficiency.
Restorations are when you have something restored to its normal condition, such as replacing an entire roof. Repairs under this category include restoring deteriorating property, rebuilding the property to pristine condition, and restoring a substantial part of the property.
These are repairs that change how the property or equipment will be used. An example of this would be converting a factory to a showroom. This would allow the repairs to capitalized for tax purposes.
Of course, there are exceptions to these. There are three ways your home improvement project may not count as a capital improvement and, therefore, not tax-deductible. This is what the IRS calls the Three Safe Harbors. These include small invoices, for expenses costing $2,500 and below; small projects if the total amount paid for the repairs is $10,000 and under; and routine maintenance. You can contest this by making a formal choice called an “election”.
If you’re in need of a roofing company this spring, turn to State Roofing for your home improvement needs. We are your number one provider of residential roofing services. Give us a call at (360) 794-7164 or fill out our contact form to schedule a free estimate. We serve homeowners in Tacoma, Kirkland, WA.