Chinese Drywall Tax Breaks? IRS Says Yes

October 12th, 2010. By LucyC

As the unfortunate saga of Chinese drywall continues to unfold, a new and welcome twist has emerged. On September 30, 2010, the Internal Revenue Services (IRS) made public its Revenue Procedure 2010-36—which implements tax breaks for people whose homes contain or contained the toxic stuff. In short, the IRS is allowing taxpayers to claim a casualty loss on the repairs of the drywall and any household appliances that were affected—against their taxes. 

Apparently, this tax break is the first large-scale effort by the federal government to provide financial relief to victims of Chinese drywall. The IRS says it will give tax breaks to homeowners who suffered property losses due to bad Chinese drywall installed in their homes between 2001 and 2009. People can file amended tax returns to claim the deduction. 

Deductions are allowed only on amounts that exceed $500. In order to receive the tax break, homeowners must also have started the process of repairing their homes, and the amounts paid for repairs must exceed 10 percent of the taxpayer’s adjusted gross income.  

This move could affect thousands, if not tens of thousands of homeowners. The Homeowners Consumer Center in Washington, DC says Chinese Drywall has allegedly been used in residential construction in all 50 states, with Florida, Louisiana and Virginia being the hardest hit due to hurricane reconstruction. As many as 300,000 homes could be impacted. 

The problems associated with Chinese Drywall are not to be underestimated. The Consumer Product Safety Commission (CPSC) has reportedly received over 3,000 complaints about the defective drywall. The sulfurous off-gassing from the drywall can cause the corrosion of wiring, air condition units and metal components in general. Not to mention health problems such as respiratory difficulties. And of course, there’s the stigma attached to a home that was contaminated—making resale difficult. 

In any event, here’s the short version of what you need to know regarding the IRS tax break, direct from the IRS website irs.gov. It’s called Revenue Procedure 2010-36 and provides for the following relief: 

• Individuals who pay to repair damage to their personal residences or household appliances resulting from corrosive drywall may treat the amount paid as a casualty loss in the year of payment. 
• Taxpayers who have already filed their income tax return for the year of payment generally have three years to file an amended return and claim the deduction. The amount of a loss that may be claimed depends on whether the taxpayer has a pending claim for reimbursement (or intends to pursue reimbursement) of the loss through property insurance, litigation or otherwise.
• In cases where a taxpayer does not have a pending claim for reimbursement, the taxpayer may claim as a loss all unreimbursed amounts paid during the taxable year to repair damage to the taxpayer’s personal residence and household appliances resulting from corrosive drywall.
• If a taxpayer does have a pending claim (or intends to pursue reimbursement), a taxpayer may claim a loss for 75 percent of the unreimbursed amount paid during the taxable year to repair damage to the taxpayer’s personal residence and household appliances that resulted from corrosive drywall.
• A taxpayer who has been fully reimbursed before filing a return for the year the loss was sustained may not claim a loss. A taxpayer who has a pending claim for reimbursement (or intends to pursue reimbursement) may have income or an additional deduction in subsequent taxable years depending on the actual amount of reimbursement received.
• For purposes of this revenue procedure, the term “corrosive drywall” means drywall that is identified as problem drywall under the two step identification method published by the CPSC and the Department of Housing and Urban Development in their interim guidance dated January 28, 2010.

 A detailed document on Revenue Procedure 2010-36 can be found on IRS.gov.

Tags: chinese drywall

This was posted on Tuesday, October 12th, 2010 at 1:37 pm and is filed under Defective Products . Feel free to respond, or trackback. Read our comments policy.