Roofing and Structural Components

The building structure is not where cost segregation usually finds short-life property. Treas. Reg. §1.48-1(e)(1) defines a building as any structure or edifice enclosing a space within its walls, and usually covered by a roof, whose purpose is, for example, to provide shelter or housing, or to provide working, office, parking, display, or sales space. Examples include apartment houses, factories, offices, warehouses, barns, garages, and stores. Section 1.48-1(e)(2) then lists walls, partitions, floors, ceilings, permanent coverings such as paneling or tiling, windows and doors, chimneys, stairs, escalators, elevators, and other components relating to the operation or maintenance of a building. Tangible personal property excludes those items. Local fixture law does not control.

Hospital Corp. of America held that these tests apply under MACRS. The IRS acquiesced in the legal test, not in item results. AmeriSouth kept most claimed building components with 27.5-year apartments. L.L. Bean treated a rack system that supported roof and walls as a building even though it was theoretically movable. Whiteco’s six permanence factors are a court test for inherently permanent structures, not a statute, and they do not pull a roof off the building definition. A roof is how the building is a building.

Publication 5653 matrices treat roofs as building property. Decorative roof elements — false dormers or mansards — remain part of the roof when removal would expose the building or when they house lighting or wiring. Boddie-Noell held that items expressly listed as structural components were not investment-credit property and treated mansard roof panels that way on those restaurant facts. Shoney’s allowed decorative interior lighting, not the roof, and the IRS nonacquiesced in the lighting result. Ornament on a roof is still often the weather envelope.

Treas. Reg. §1.263(a)-3 distinguishes the building structure from listed building systems (HVAC, plumbing, electrical, elevators, fire protection, security, gas). The roof is part of the building structure unit of property for improvement testing. Replacing a roof is typically a restoration of that structure. A partial disposition election under Treas. Reg. §1.168(i)-8 can recognize remaining basis in the retired roof. Those rules do not create a five-year roof class.

Qualified improvement property under section 168(e)(6) is an improvement by the taxpayer to an interior portion of a nonresidential building placed in service after the building was first placed in service. It excludes enlargements, elevators and escalators, and internal structural framework. A roof is not an interior improvement. Publication 946 also discusses roofs in connection with section 179 qualified real property, which is an expensing election, not a five-year life. Do not stretch QIP onto the weather envelope.