New Roof Cost over $11000

[TaxGuyBill]

There is a similar thread on taxprotalk and one of the real experts in this said area that the PPI method would not be allowable because the new roof would constitute a betterment. That would preclude the use of the PPI method which is only allowed with restorations.

My posts above are not correct.

That's good to know about the PPI for betterment versus restorations. I'll look more into it, but it makes sense.


However, I don't think I agree that a new roof would necessarily mean a betterment. If the shingles were made of similar materials, why wouldn't it be a restoration?

On the other hand, the DOES explain my edited scenario in my post. It WOULD be a betterment if the original roof was 'placed in service' when it was NOT brand-new.


Now it's making a bit more sense.

[equinecpa]

Where does one find the CPI and PPI Figures?

I'd also be interested in seeing an example of the calculation of the partial disposition using the CPI index if someone could provide a link to one.

Edited to include an example:

I think the CPI method is fairly straight forward. You take the cost of the replacement and multiply it times a fraction the numerator is the PPI in the month of acquisition and the denominator is the PPI in month of disposition. For example, a building was purchased in April 1989 and a new roof was put on in June 2008 at a cost of $100,000. The rollback would be calculated as follows:

$100,000 x 113.0 (April 1989 PPI) /182.4 (June 2008 PPI) = $61,952. You would then calculate accumulated depreciation from April 1989 through June 2008 (assume 39 yrs for my example) $61,952/39 x 18.167 = $28,858. The loss then would be $61,952 - $28,858 = $33,094.

I sure hope someone corrects me if I am wrong.

[equinecpa]

Found this decision tree: http://www.kbkg.com/nationwide/broch...ision-tree.pdf

Facts of this case: Wind storm caused damage. Roof had no been replaced since 2000 when the house was built. I think this is a restoration. And I found out that the client received insurance proceeds of $6000 for the roof

New Question: Cost of repair was $11000 but client only had $6000 out of pocket -does this qualify as being less than 10K?

[ttbtaxes]

I think the what makes it a betterment is when the taxpayer acquired it used and replaced it at some point in the future. See Reg 1.263(a)-(3)(j)(1)(a)(i) which defines a betterment:

"(i) Ameliorates a material condition or defect that either existed prior to the taxpayer's acquisition of the unit of property or arose during the production of the unit of property, whether or not the taxpayer was aware of the condition or defect at the time of acquisition or production;"

Now if you bought the building used, but it was only two years old, then replaced it 12 years later, it seems to me it would be very difficult to to argue it was a material condition or defect when you bought a building that was only two years old.