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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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how can I deduct a loss on my home from mold where we had to

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how can I deduct a loss on my home from mold where we had to rebuild ie Ed MvMahon. Will supply more info, but need casualty loss to deduct and offset income. Insurance company used a clause under secondary damage from water damage to cover us as mold directly had too restrictive of limits in policy. Discovered after change of A/C. Sued A/Ccompany and won back some of loss and money for health. We were out of our hoouse for 5 years and loss far exceeded what we received. My Tax man giving me a pain to classify as casualty loss due to mold. Maybe what Ed McMahon did or what occured in ST Louis causing mold which I belive is allowed underf special clause from Congress or President Bush at time. Can email me for more facts, wsilling to talk on phone and pay more for successful answer, and outcome. This is old info to me, need a way to qualify loss to deduct all at once not over time. you can email me atXXX@XXXXXX.XXX
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

A casualty does not include normal wear and tear or progressive deterioration from age or termite damage. The damage must be caused by a sudden, unexpected, or unusual event (e.g., car accident, fire, earthquake, flood, vandalism).

 

Loss of property due to progressive deterioration is not deductible as a casualty loss.

According to the IRS publication 547 - http://www.irs.gov/pub/irs-pdf/p547.pdf - damage from mold is generally considered as progressive deterioration and as such may not be deductible as a casualty loss.

 

Settlements in a mold lawsuit filed by Ed McMahon is for failing to adequately handle remediation of mold in their Los Angeles home - see some details here - http://www.imakenews.com/pureaircontrols/e_article000154071.cfm - that settlement has nothing to do with tax treatment. Settlement amount

 

Some additional information....

According to IRS Private Letter RulingNNN-NN-NNNN- http://www.irs.gov/pub/irs-wd/0607003.pdf - the tax treatment of the cost that increases the useful life of a building, add value to it or adapt it to a different use must be capitalized and depreciated over the applicable period prescribed by the Internal Revenue Code.

In PLRNNN-NN-NNNN the IRS determined that the cost of mold removal did none of these things; it merely kept the building serviceable - so the IRS permitted the cost to be deducted in the year incurred by the taxpayer. The ruling did state that it was presumed that none of the mold had been present at the time the taxpayer purchased the property - assuming otherwise - the mold remediation may have been treated as a part of the purchase cost.

 

Please be aware that

  • the IRS Private Letter Ruling covers only specific situation and specific taxpayer and may not be applied to all other situation (but as a practical matter it serve as an example - not as a law)
  • in this specific situation the cost of mold removal should be deducted on the schedule C (for property used in business) or schedule E (for rental property)
  • this would not apply to the costs of mold removal in your home, which is a personal use property with respect to which maintenance costs are not deductible for income tax purposes.

you may be able to treat the cost of mold removal for personal use property as causality loss - but that issue is not addressed in this PLR

While the mold itself is not a casual event - the cause of the mold - such as the damage of the pipe may be considered as a casual event - if so - all resulted damage may be treated as the casual loss and may be deducted as such.

 

A key factor to consider is whether the mold damage occurred as a direct result of a causal event - and there is a direct connection between the casualty event and the loss claimed.

 

If your property has to be torn down or rebuilt because of the mold damage - that is not a casual event, but

if your property has to be torn down or rebuilt because of broken pipe (that was a sudden, unexpected, or unusual event) - you may have a casualty loss deduction to the extent of expenses you paid for that were not reimbursed by insurance.

 

To determine the casual loss you will need before and after full appraisals by qualified experts to back the deduction.

If the large amount of money involved - you may consider to request a PLR from the IRS to back your deduction.

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23237
Experience: Taxes, Immigration, Labor Relations
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