IRS to Allow Casualty Deductions for Damaged Concrete Foundations

By:
Chris Gaetano
Published Date:
Nov 28, 2017

IRS

The IRS will now allow certain damage resulting from deteriorating concrete foundations to be treated as a casualty loss. The IRS said that, in 2015, a report from the Connecticut Department of Consumer Protection found that numerous recent complaints from homeowners about deteriorating concrete foundations could be linked to the presence of pyrrhotite in the mixture. Pyrrhotite, a naturally existing mineral in stone aggregates, oxidizes when exposed to water and oxygen, causing it to expand, which in turn leads to premature concrete deterioration. Shortly after the report was issued, the IRS began receiving inquiries as to whether losses resulting from such damage can be counted as a deductable casualty loss within the meaning of §165 of the Internal Revenue Code. 

In view of what the IRS said were unique circumstances surrounding the damage caused by deteriorating concrete foundations with pyrrhotite, the Treasury Department has concluded that it is appropriate to provide a safe harbor method treating certain damage as a casualty loss, and to provide a formula for calculating that loss. Accordingly, for an individual taxpayer within the scope of this revenue procedure, the Service will not challenge the taxpayer’s treatment of damage resulting from a deteriorating concrete foundation as a casualty loss if the loss is determined and reported as provided in this revenue procedure. 

Taxpayers who paid to repair damage to their personal residence caused by a deteriorating concrete foundation can treat the amount paid as a casualty loss in the year of payment, so long as the damage was caused by the presence of pyrrhotite in the concrete mixture. This means the taxpayer must get a written evaluation from a licensed engineer indicating the foundation was made with defective concrete, as well as a reassessment report showing the reduced reassessed value of the residential property based on both the engineer’s written evaluation and an inspection. 

The loss is limited to the taxpayer’s adjusted basis in the property, but this is further affected by whether they have pending claims for reimbursement. If the taxpayer has no such claims, and has no plans to pursue them, then they may claim as a loss all the unreimbursed amounts paid during the taxable year. If they have a pending claim, or intends to pursue such a claim, then the loss is limited to 75 percent of the unreimbursed amount paid during the taxable year. If the taxpayer has been fully reimbursed, then they cannot claim a loss. 

The IRS said that “The safe harbor also is available to a taxpayer whose personal residence is either in Connecticut or outside of Connecticut,” which seems to be a complicated way of saying “anywhere in the U.S.” 

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