IRS Provides Tax Relief for Homeowners With Corrosive Drywall

If you're one of the many homeowners who suffered property losses due to the effects of certain imported drywall installed in homes between 2001 and 2009, the Internal Revenue Service (IRS) has some good news for you.

Called Revenue Procedure 2010-36, new guidance from the IRS enables affected taxpayers to treat damages from corrosive drywall as a casualty loss and provides a "safe harbor" formula for determining the amount of the loss.

In numerous instances, homeowners with certain imported drywall have reported blackening or corrosion of copper electrical wiring and copper components of household appliances, as well as the presence of sulfur gas odors.

Noxious odors

"In October 2009 we discovered we had Chinese drywall," Carol of Birmingham, AL, writes ConsumerAffairs.com. She says a forensic specialist took samples and investigated and his report "proved we have a high concentration of gases that have corroded our coils in our air conditioners, pipes on our hot water heater, jewelry, silver service, etc."

In addition, she says, "We had been sick frequently, which seemed to puzzle our physician. I have asthma, which has gotten increasingly worse. The smell of the gas has gotten worse with time and I wonder if we will end up with our house on fire and have nothing left or if my life will be shortened due to the gases causing health issues. I have gotten acne all on my face and never have had a problem."

As far as economic consequences are concerned, Carol tells us, "We have lost the worth of our house at the age of 68. All the wiring is corroded in the house."

Guy from Pearland, TX, says he's complained about smell in his home for over three years and now has found out he has Chinese toxic drywall. He tells ConsumerAffairs.com his builder, Meritage Homes of Texas, LLC, "now admits it, but swears they did not know about it three years ago." The company, he says wants to "come in and completely gut the house, vent out the chemical and issue me a certificate that certifies that the house is now free of chemical. I do not want that as the house is so poorly built that I don't think it would ever be livable." Guy says he has joined a class action suit and "will just keep breathing the fumes and hope for the best."

In November 2009, the Consumer Product Safety Commission (CPSC) reported that an indoor air study of a sample of 51 homes found a strong association between the problem drywall, levels of hydrogen sulfide in those homes and corrosion of metals in those homes.

Tax Relief

Revenue Procedure 2010-36 provides 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 she may claim as a loss all unreimbursed amounts paid during the taxable year to repair damage to the her personal residence and household appliances resulting from corrosive drywall.

· If a taxpayer does have a pending claim (or intends to pursue reimbursement), a he may claim a loss for 75 percent of the unreimbursed amount paid during the taxable year to repair damage to the his 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. One 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.