IRS may allow casualty loss deduction for Chinese-made drywall
Chinese-made drywall, which is allegedly making individuals ill from noxious odors, may qualify for a casualty loss deduction, the IRS recently indicated. A final determination is expected after the Consumer Product Safety Commission (CPSC) completes its investigation later this year. Homeowners and businesses in nearly half of the 50 states and the District of Columbia have complained of health problems from Chinese-made drywall.
Casualty loss
When a disaster hits, many homeowners and businesses think of the casualty loss provision (Code Sec. 165). Taxpayers may take a deduction for losses from fire, storm, shipwreck, or other casualty. The definition of "other casualty" is often the subject of litigation. The IRS, analogizing to fire, storm, and shipwreck, has taken the position that a casualty is the complete or partial destruction or loss of the taxpayer's property resulting from an identifiable event that is sudden, unexpected and unusual.
Health problems
The CPSC has received reports from 22 states about defective Chinese drywall. Putrid odors from the drywall allegedly cause irritated and itchy eyes and skin, difficulty breathing, bloody noses and headaches. The odors have also reportedly corroded pipes and electrical equipment. In almost every case, taxpayers have had to remove the drywall from the structure at significant expense.
Conditional response
The IRS did not give say that taxpayers could take a casualty loss deduction but neither did it rule it out. Rather, the IRS seems to be waiting for the CPSC to complete its investigation. "If it is determined that Chinese-made drywall emits an unusual or severe concentration of chemical fumes that causes extreme and unusual damage, affected taxpayers can qualify for a casualty loss deduction," the IRS indicated.
Our office will keep you posted of developments. If you suspect you have a casualty loss from Chinese-made drywall, please contact our office.
(IRS Chief Counsel Letter Regarding Chinese-Made Drywall)
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