TAX RELIEF FOR VICTIMS OF TOXIC CHINESE DRYWALL

Recently, Senator Bill Nelson wrote to the Department of Treasure, Internal Revenue Service and requested clarification to determine whether the tax code would allow victims of toxic Chinese drywall to receive some sort of tax deduction. In response, George J. Blaine, Associate Chief Counsel of the Department of Treasury, Internal Revenue Service has stated that if it can be proven that the drywall emits an unusual or severe concentration of chemical fumes that causes extreme and unusual damage, then the homeowner can qualify for a casualty loss deduction (click here to view the IRS’ letter to Senator Bill Nelson. This deduction is found in Section 165 of the Internal Revenue Code (click here to see the specific tax code). This law allows a deduction for qualifying casualty losses sustained during the taxable year, and not compensated for by insurance or otherwise. The amount of the casualty loss can be calculated by taking the difference between the fair market value of the home immediately before and immediately after the casualty, limited to the adjusted basis of the home. However, the IRS also states that costs incident to a casualty (for example, temporary alternative accommodations) are nondeductible personal expense, not deductible casualty losses. Additional limitations may still apply to this casualty loss deduction. Therefore, we have now posted to our Web-site the most recent IRS Publication 547, Casualties, Disasters and Thefts, which explains in detail the requirements for claiming a casualty loss deduction. Please click here to view the IRS publication.

As an advocate for victims of Chinese drywall this is welcomed good news. This was one of the proposals that we discussed early on and had continued to advocate for. We thank Senator Bill Nelson for clarifying this issue for these victims.

However, we feel even more should be done. If the current tax code does not allow victims to deduct costs incident to a casualty (for example, temporary alternative accommodations), then this law needs to be changed. The only way victims who are living in these homes can afford to move out and protect themselves and their families, is for the government to allow for this type of deduction. This would be an effective way for the government to help victims without having to write a check for another “bailout.”

To learn more about this tax code and relief for victims of Chinese drywall, please see a recent news article.