New Tax Deduction for Crumbling Foundations Expenses

By December 6, 2017Tax Tips

Crumbling foundations have been a living nightmare for many homeowners in northeastern Connecticut. Imagine discovering that the foundation to your home is deteriorating, literally crumbling, and can no longer safely support your home. Not only are kitchen cabinets falling off the walls, but you can’t sell your home, and it is worth less than you owe, never mind what you paid for it. Insurance won’t pay to fix this, and the bill to do so can be six figures. Many have been living this nightmare for years at no fault of their own.

The IRS just issued a Revenue Procedure that allows taxpayers to deduct unreimbursed repair costs to their personal residence as a casualty loss. Typically, a casualty loss is one that is sudden, unexpected and unusual, such as fire or theft. Crumbling foundations are a deterioration over time, so they haven’t met the general criteria. Homeowners who were burdened with unreimbursed repair costs could not deduct them from their taxes even though, to them, they were an unexpected tragedy.

Now, the IRS has determined that “A taxpayer who pays to repair damage to that taxpayer’s personal residence caused by a deteriorating concrete foundation may treat the amount paid as a casualty loss in the year of payment.” Rev. Proc. 2017-60. Like all tax deductions, there are rules, and the deduction for crumbling foundation expenses applies to “a taxpayer who has obtained a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete, and has requested and received a reassessment report that shows the reduced reassessed value of the residential property based on the written evaluation from the engineer and an inspection pursuant to Connecticut Public Act No. 16-45.” The deduction is available to homeowners in states other than Connecticut, too.

This new safe harbor rule “is effective for federal income tax returns (including amended federal income tax returns) filed after November 21, 2017.” Nothing makes up for the impact of crumbling foundations on homeowners; access to an IRS safe harbor may afford a small financial remedy. You may wish to discuss this with your tax preparer if you believe you qualify for this deduction.