The Miami Herald: More Tax Relief Needed For Drywall Damages (08-31-09)

BY C. DAVID DURKEE

Special to The Miami Herald

Scientific tests have shown that toxic China-made drywall installed in homes beginning in 2001

emits harmful gases that corrode copper wiring and other parts of people’s homes. In addition, these gases harm people’s health, making many homes uninhabitable. Homeowners must not be left to shoulder this burden alone.

Democratic Sen. Bill Nelson, an active ally of these victims, has written to the Department of Treasury, Internal Revenue Service to determine if the current tax code would permit some sort of deduction. George J. Blaine, associate chief counsel of the Department of Treasury, Internal Revenue Service, responded that if it can be proven drywall emits an unusual or severe concentration of chemical fumes causing extreme and unusual damage, then the homeowner can qualify for a casualty loss deduction. This deduction is found in Section 165 of the Internal Revenue Code (http://tiny.cc/cp0S0).

The law currently 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.

Our law firm, Roberts & Durkee, recommends that homeowners review the most recent IRS Publication 547, Casualties, Disasters and Thefts, which explains in detail the requirements for claiming a casualty loss deduction. At www.chinesedrywallproblem.com, our firm has posted the IRS letter to Nelson clarifying this deduction, the tax-code provision relating to it and IRS Publication 547.

Although the casualty loss deduction allows victims to deduct the home’s loss of market value from their taxes, the current tax code does not allow them to deduct for the additional living expenses incurred when homeowners must move and live elsewhere to escape toxic drywall emissions.

In the letter to Nelson, the IRS specifically states that costs incident to a casualty (for example, additional living expenses such as moving expenses and rent) are nondeductible personal expenses and nondeductible casualty losses. However, for the victims of this terrible tragedy, this is an equally important deduction.

By changing this provision of the tax code and allowing for this deduction, the federal government would provide victims with much-needed assistance to move out of their toxic homes and seek safer accommodations. In addition, this deduction could positively impact the foreclosure crisis. If more people can afford to move into temporary accommodations because of this tax change, then many folks who need to rent their investment homes to continue to pay their mortgages would be able to avoid foreclosure.

In short, there’s still more to be done to ensure the victims receive the protection they deserve. Victims of Chinese drywall deserve a safe alternate residence for themselves and their families.

If the current tax code does not allow victims to deduct costs incident to a casualty, then this law must be changed. We encourage all victims to contact lawmakers and make this message clear.

C. David Durkee is a partner with the Florida law firm of Roberts & Durkee, which is currently helping homeowners with their toxic Chinese drywall problems.

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