Hello JA Customer,
In order to qualify as a tax deduction, damage to your property must be classified as a casualty loss, which is the result of a sudden unexpected event. It cannot be damage which has occurred over a period of time. Here is what the IRS specifically states about mold damage:
The formation of mold may qualify as a separate casualty. A casualty is an event that is identifiable, damaging to property, and sudden, unexpected, and unusual in nature. An event is sudden if it is swift and precipitous, and not gradual or due to progressive deterioration of property through a steadily operating cause. An event is unexpected if it is unanticipated and it occurs without the intent of the one who suffers the loss. An event is unusual if it is extraordinary and nonrecurring, one that does not commonly occur during the activity in which the taxpayer was engaged when the destruction or damage occurred and one that does not commonly occur in the ordinary course of day-to-day living of the taxpayer. If, under a particular set of facts, the formation of mold is a sudden, unexpected, unusual and identifiable event that caused damage to the individual's property, then it would qualify as a casualty and the individual may be entitled to deduct the loss for the resulting property damage as a casualty loss under section 165(c)(3) if the individual satisfies the other requirements for the deduction.
In the majority of cases, mold is not a deductible expense, as it is generally not the result of a sudden unexpected event, such as a fire, tornado, hurricane, etc. It is something which has built up over time, even ore evidenced by the fact that you did not discover this expect through renovations being made.
To claim this as a casualty loss, there would have to be another underlying sudden event that had occurred which resulted in the rapid mold buildup as a result of the initial casualty.
Thank you JA Customer