I have a roof coating for a significant amount of dollars. Solar panels are being installed and the installer suggested the roof be recoated under the area the solar panels would be installed on - so we are including that in the capitalization of the solar panels. That is only about a third of the roof. The decision was made to recoat the entire roof. Does anyone know if the other two thirds of the roof recoat would be capitalized or expensed? I haven't been able to find a very definitive answer, but what I have found is that a recoat of a roof is generally considered a repair. Appreciate any input.
Yes if it is going to increase the life of the roof top.
I would think this is a question whether the cost of recoating the roof that was for the solar panels only could be separated from the cost of recoating the rest of the roof. I would assume that the contractors would have quoted one price for the whole project. Or if the cost of recoating can be separated from the cost of the solar panels, then maybe that would segregate the costs to be expensed and capitalized, respectively (since the recoating was a "suggestion" and not a necessity). The hard part would be segregating the labor costs, because I would think that the contractor would not have kept accurate timekeeping per task. If cost segregation is not feasible and majority of the cost of the project is related to the solar panels, I would think it is safe to capitalize everything.
If the coating prolongs the life of the roof then I think it meets the rules for capitalization. See below guidance.
"However, a cost must be capitalized if it results in an improvement to the building structure or to any of the specifically enumerated building systems. For this purpose, a building structure consists of the building (as defined in Regs. Sec. 1.48-1(e)(1)) and its structural components (as defined in Regs. Sec. 1.48-1(e)(2)), other than the structural components designated as building systems."
"An expenditure improves a building if it results in an improvement to the building structure or any designated building system. The entire HVAC system, including the roof-mounted units and their components, makes up a building system. If the payment results in an improvement (for example, a betterment) to the HVAC system, you must treat this amount as an improvement to the building and capitalize the expenditure."
Lots of great responses - thanks so much!
I just watched a webinar yesterday discussing this very thing. The recoating would be expensed, not capitalized because it is not a significant replacement of the entire roof structure. The roof structure includes the decking underneath the roof. If there were repairs or replacement to the decking as well as recoating then capitalization would be the answer.
David Belnap, CMA, CPA
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I would expense the remaining coating. My own home experience is that such coatings need to be renewed every 10 years or so, which is much shorter time than the roof itself should last. The coating does not add life to the roof, it merely prolongs the effectiveness of it.
Dan Goldzband, CMA
San Diego CA
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