Homeowners can take a federal tax deduction to repair corrosive drywall.
Homeowners cannot deduct mandatory home repairs except in the case of replacing corrosive drywall, but they can take a federal tax deduction for sudden and unexpected property damage to their personal residence. The cost of repairs due to theft or natural disaster may also make it possible for homeowners to reduce capital gains tax if they ever decide to sell their home. Homeowners must meet eligibility requirements to take a property damage deduction, and keep detailed records in case the Internal Revenue Service challenges their tax write-offs.
Considerations
The IRS allows homeowners to deduct the loss of value in their home due to casualty, such as storm or fire damage, or due to theft, such as the loss of copper wiring, in the year the damage occurred if they do not receive full reimbursement from an insurance company. Occurrences of expected damage, such as an old roof leaking, do not allow a homeowner to qualify for a casualty or theft deduction.
Calculation
Homeowners can calculate their loss from casualty or theft by subtracting the fair market or salvage value of the property from their cost basis in the property on IRS Form 4684. They must then reduce the cost of their losses by $100 for each incidence of damage to determine the deductible amount. Homeowners can only take deductions for losses that exceed 10 percent of their adjusted gross income, and they will report their deduction for damages on Form 1040, line 38.
Repairs
If a homeowner makes repairs to his property due to causality or theft, he cannot take a casualty deduction, but he can reduce his capital gains tax burden if he decides to sell his property in the future. In order to add repairs to the cost basis of his home, the repairs must be necessary and only replace the damage caused by the casualty or theft. The appraised value of the property after repairs cannot be higher than the appraised value before the damage occurred, according to Turbo Tax.
Drywall
During the housing boom in the 2000s, some contractors installed corrosive Chinese drywall in homes that homeowners had to remove due to serious health risks and electrical system damage. U.S. homeowners can deduct the entire cost of their out-of-pocket corrosive drywall repairs on Form 4684 for the tax year in which they paid for the repairs. If they already paid for repairs, they can amend an earlier year tax return to take the deduction. If homeowners have a pending claim of compensation through a settlement or lawsuit, they can only deduct 75 percent of their mandatory repair costs.
Tags: casualty theft, corrosive drywall, appraised value, capital gains, cost basis
