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Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Is mold remediation tax deductible for homeowners who discover

Resolved Question:

Is mold remediation tax deductible for homeowners who discover mold during renovation?
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.

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

 

 

Customer: replied 4 years ago.

I was under the impression that mold removal and repair is a tax deductible business expense for landlords and homeowners, since about 2006 when the IRS issued a private letter ruling that mold removal costs by a building owner, including both homeowners and landlords, was not a capital expenses, but a business expense that is ordinary and necessary. Mold removal does not alter the building or adapt it to a new or different use so it can be considered a current expense instead of a capital expense which gets added to the tax basis of an asset and only provides a tax benefit by depreciation.

If the homeowner doesn't know if there's mold but "discovers" it when, for example, a window is removed, it may have been a "sudden" condition or not, but who knows?

A “repair” saves the value of your home and is a necessary and ordinary expense, while a “renovation” adds value. Mold removal is considered a repair since it does not add value to a home.
Expert:  Merlo replied 4 years ago.

Hello again JA Customer,

 

You did not indicate in your first post that this was a business expense for a landlord. If that is the case, then you may deduct the cost of the repairs because it is in connection with income producing property and would be an allowed expense. It is not deductible, however, as a repair expense on the repair of your personal home.

 

 

Thank you JA Customer

 

 

Customer: replied 4 years ago.
It's for both, I thought:
"...deductible business expense for landlords and homeowners, since about 2006 when the IRS issued a private letter ruling that mold removal costs by a building owner, including both homeowners and landlords, was not a capital expenses, but a business expense that is ordinary and necessary."
Expert:  Merlo replied 4 years ago.

Hello again JA Customer,

 

Any time that you have an expense connected with you personal home, whether it be a repair or a capital improvement, it is never deductible. The only time that you can deduct repairs is in connection with property that is held for investment that does or will eventually produce income. The quote you gave specifically states "business expense" -- you have no business expense in connection with a personal property.

 

Both homeowners and landlords means homeowners of business property or investment property that have a business expense. This does not apply to damage that occurs to a personal home. There is no other repair, including this one, that is allowed as a deduction for the repair of a personal home. The cost you incur strictly adds to your basis in the home, and will thereby reduce any gain you may have when you eventually sell the property. In the meantime this is not allowed as any type of deductible expense unless it is part of a casualty loss.

 

If this was helpful please press the Accept button. Positive feedback is also appreciated.

 

Thank you JA Customer

 

 

Customer: replied 4 years ago.
Last thought:
How come there is tax relief for Chinese Drywall or termites? It is not a casualty loss by strict definition. It is tax relief due to the devaluation result of these conditions leading to the need for "repair" in order to protect your investment in your home, if not to protect your health.
Expert:  Merlo replied 4 years ago.

Hello again JA Customer,

 

There is no tax deduction for the items you mentioned unless they qualify as a casualty loss. It falls under the same guidelines as any other type of repair.

 

The ONLY time that you can deduct a repair of any kind to a personal home is if the damage is the result of a casualty loss -- there are absolutely no exceptions whatsoever to this rule. As I stated previously, the costs you incur would add to your basis in the home, thereby reducing your taxable gain when you eventually sell the property. That is when you would receive some type of tax benefit. But the cost of the repairs themselves are not allowed as a deduction unless they are a direct result of a casualty loss, regardless of the type of damage that you have experienced.

 

 

Thanks again

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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