Tax Deduction for Damage from Corrosive Drywall

If you have had problems in your home due to defective drywall, you may be able to get some relief in the form of a federal income tax deduction. The defective drywall emits hydrogen sulfide, which blackens or corrodes copper electrical wiring and copper components of household appliances, in addition to emitting a sulfurous odor. The IRS allows the damages to be treated as a casualty loss for tax purposes.

For purposes of determining whether you have a deductible casualty loss due to corrosive drywall, the IRS uses the interim guidance published by the Consumer Product Safety Commission and the Department of Housing and Urban Development. This identification method involves an initial inspection to find signs of blackening or corrosion of copper electrical wiring and/or air conditioning evaporator cables, and evidence of the installation of new drywall. The second step of the method involves corroborating evidence that the problem is due to the drywall.

To claim the casualty loss deduction for corrosive drywall, you need to complete Form 4684. As indicated by the IRS, you should enter “Revenue Procedure 2010-36” in the top margin of Form 4684. You should enter a description of your property on line 1 in Section A. You do not have to indicate the cost or other basis on line 2. Any insurance or other reimbursement you have received is reported on line 3. On line 8 you enter the amount you paid to repair your home and household appliances for the damages caused by the corrosive drywall. If you replaced an appliance instead of repairing it, you should enter the lesser of the current cost to replace the original appliance, or the basis of the original appliance, which would generally be its cost.

If you do not have a pending claim for reimbursement through your property insurance or litigation, you can deduct the entire cost of repairs to your home and your household appliances due to the corrosive drywall. If you have a claim or litigation pending, you can deduct 75% of the cost of the repairs. In this case, in a future year when your claim is settled, you may have income to report or an additional deduction to claim, depending on the amount of the reimbursement. Each casualty loss deduction is reduced by $100, and the total casualty loss for the year is reduced by 10% of your adjusted gross income.

If you incurred the costs to repair the damage caused by the corrosive drywall in a prior year, you have three years to file an amended return and claim the deduction. If you are filing an amended return to claim the deduction for a prior year, you need to attach the Form 4684 for that year. You can look up the form by year and download it from Prior Year Forms, Instructions and Publications on the IRS website.

Sources:

Form 1040X, Amended U.S. Individual Income Tax Return, IRS

Form 4684, Casualties and Thefts, IRS

Interim Guidance — Identification of Homes with Corrosion from Problem Drywall, Consumer Product Safety Commission and the Department of Housing and Urban Development

IRS Provides Relief for Homeowners with Corrosive Drywall, IRS

Prior Year Forms, Instructions and Publications, IRS

Publication 547, Casualties, Disasters, and Thefts, IRS

Richard Defendorf, IRS Allows Deduction for Defective-Drywall Replacement, GreenBuildingAdvisor.com