In general, home improvements such as a roof replacement do not qualify as a tax deduction. However, installing solar panels or "green" technology on your roof will qualify you for federal and possibly state energy tax credits. An energy-efficient roof also means lower utility bills. You might even receive energy incentives from your utility company. In addition, some home insurers offer lower premiums for building a strong roof with quality materials.
Deductions are quite popular when tax time rolls around. Unfortunately, Uncle Sam doesn't allow a deduction for home improvements -- and a roof replacement falls under this category. According to IRS rules, a tax-acceptable improvement must add value to your home, considerably prolonging its useful life or adapting your home for new uses. However, the money you spend on a roof replacement adds to your home's cost basis, which reduces your capital gains tax when you sell your home.
Federal Tax Credits
Even though your roof replacement doesn't qualify for a deduction, you could still qualify for the Residential Energy Efficient Property Credit. But there's a catch. The credit only extends to the installation of "qualified residential alternative equipment" such as a solar hot water heater, solar electricity equipment or wind turbines. Installing solar panels on your roof would certainly qualify as alternative equipment. The credit runs through 2016 and is 30 percent of the qualified equipment cost with no upper limit. You can also include the cost of labor when calculating the amount of the credit.
State Tax Credits
Depending on where you live, you may also qualify for a state energy tax credit on top of the federal tax credit. For example, New York State provides a Residential Solar Tax Credit of up to $5,000 for solar energy systems. The U.S. Department of Energy created a website called the Database of State Incentives for Renewables and Energy, or DSIRE, which summarizes federal, state and local tax incentives for going green.
A roof replacement has other benefits besides the potential for federal and state tax credits if you choose to go green. You should expect a drop in your utility bills with an installation of an energy-efficient roof. You can check with your local utility company to inquire about incentives for installing energy-efficient equipment such as solar panels. Finally, depending on where you live, some home insurers might offer you a premium discount if you build your roof with "qualifying impact-resistant roofing products."