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Wednesday, July 15, 2009Attention Florida Rental Property Owners:
Casualty Loss resulting from Chinese Drywall damage
Casualty loss deductions would ease the financial pain of faulty Chinese drywall
Responding to legislators' requests that IRS clarify whether damage caused by defective Chinese drywall can result in a casualty loss deduction, IRS Associate Chief Counsel George Blaine has responded with a conditional “yes.” The damage would be deductible as a casualty loss under Internal Revenue Code 163(h) but only if the Environmental Protection Agency (EPA) and Consumer Product Safety Commission (CPSC) determine that the defective drywall is the source of unusual damage.
Background. To qualify as a casualty loss, a loss must result from a destructive force, such as a fire, shipwreck, automobile collision, hurricane or other storm, flood or similar event.Personal casualty losses are subject to a $100-per-casualty floor and the 10%-of-AGI limitation. Business casualty losses are not subject to any limitations (Rental Properties)
Court decisions and revenue rulings have developed the overall concept that the term casualty refers to an identifiable event of a sudden, unexpected, or unusual nature. Suddenness is an essential element of a casualty. To be sudden, the event must be one that is swift and precipitous and not gradual or progressive. Progressive deterioration of property through a steadily operating cause isn't a casualty loss.
Chinese drywall problem. At the height of the U.S. building boom (largely in Southwest Florida), a scarcity of domestically made drywall resulted in the importation of large quantities of Chinese-made drywall, which was installed in an estimated 100,000 living units. Many news reports have surfaced to the effect that the Chinese drywall is defective, and due to the chemicals it emits, is causing health, as well as construction problems.
Please consult your tax advisor if you feel this may apply to your situation and to the treatment of these losses.
Circular 230 Notice: IRS regulations require us to advise you that, unless otherwise specifically noted, any federal tax advice in this communication (including any attachments, enclosures, or other accompanying materials) was not intended or written to be used, by any taxpayer for the purpose of avoiding tax-related penalties imposed under the U.S. Internal Revenue Code or any other applicable state or local tax law provision; furthermore, this communication was not intended or written to support the promoting, marketing or recommending of any of the transactions or matters it addresses.
Greg Nelson, CPA | Principal | Olsen Thielen & Co. Ltd. | Flagship Corporate Center | 775 Prairie Center Dr. Ste. 480 | Minneapolis, MN 55344 | Phone: 952-829-3402 | Fax: 952-941-0577 | www.otcpas.com
