Cash In on Toxic Chinese Drywall


With stories of toxic imports flooding the U.S. market, you wouldn’t be completely crazy to worry that your house could become a toxic waste site.  Unfortunately, if you house was built using Chinese-made drywall, that scenario isn’t entirely implausible.  People have reported that drywall from China is emitting toxic fumes that cause serious health concerns and damage property.

Now a group of Senators and a Congressman have called upon the IRS to offer a casualty deduction to the unlucky homeowners stuck with the dodgy drywall. According to their letter, constituents have reported that the drywall has caused “extreme and unusual corrosion of pipes, air conditioning coils and electrical appliances.”  And if that’s not enough cause for concern, people have also complained of “a putrid smell and gas” coming from the drywall that may cause “nosebleeds, sinus infections and breathing problems.”

In its response, the IRS indicated that if the drywall is as bad it seems, homeowners who have it may be entitled to take the casualty loss deduction. Avid readers of the Daily Deduction know that this deduction is available to taxpayers for losses resulting from casualties, disasters and thefts.  According to the IRS, a casualty is damage to your property that results from a sudden, unexpected or unusual event.  Occurrences such as earthquakes, fires and floods all fall under the sudden event category.  But other types of disasters that are not the result of usual wear and tear (an unexpectedly vicious smell coming from your walls, for instance) can qualify.

But don’t take that deduction just yet! The IRS is currently awaiting the results from two separate investigations by the EPA and Consumer Product Safety Commission before it decides whether the losses from the suspect drywall qualify for the break. The EPA’s initial investigation indicated that the Chinese drywall contains an unusually high level of sulfur, which could account for the rotten egg smell that some homeowners have reported.  But the final report has not been issued yet. Only if investigations determine that the drywall is emitting a severe concentration of potentially damaging chemical fumes will affected taxpayers qualify for the loss.

If the casualty loss deduction does become available, how much can you claim?  Well, it will either be calculated using the cost you paid for the damaged property or the decline in the property’s fair market value, whichever is less.  Next, subtract $100; then subtract 10% from your adjusted gross income.  Whatever is left over is yours to deduct.

But remember, there are a couple limitations to the deduction.  You can’t deduct any loss that was covered by your insurance company.  Also, certain timing requirements apply, so check out Publication 547 Casualties, Disasters and Thefts, before you go and make any changes to your 1040 form.

Be sure to find out more ways to save by checking out the Daily Deduction archive.

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