IRS Gives More Time for Deducting Home Repair Damage Due to Presence of Pyrrhotite

(Parker Tax Publishing March 2018)

The IRS is extending the time that individuals have to pay to repair damage to their personal residences resulting from deteriorating concrete foundations caused by the presence of the mineral pyrrhotite. The additional time is available to any taxpayer whose personal residence was either in Connecticut or outside of Connecticut, provided the taxpayer obtains a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete containing the mineral pyrrhotite. Rev. Proc. 2018-14.

Background

In Rev. Proc. 2017-60, the IRS provided a safe harbor method that allowed a taxpayer who, before January 1, 2018, paid to repair damage to that taxpayer's personal residence resulting from a deteriorating concrete foundation that contained the mineral pyrrhotite to treat the amount paid as a casualty loss in the year of payment.

The safe harbor was available to any taxpayer who obtained a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete, and requested and received a reassessment report that showed the reduced reassessed value of the residential property based on the written evaluation from the engineer and an inspection pursuant to Connecticut Public Act No. 16-45. The safe harbor was available to any taxpayer whose personal residence was either in Connecticut or outside of Connecticut, provided the taxpayer obtained a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete containing the mineral pyrrhotite.

IRS Extends Time to Claim a Casualty Loss

As noted above, to claim a casualty loss under the safe harbor in Rev. Proc. 2017-60, a taxpayer generally must have paid to repair damage caused by a deteriorating concrete foundation before January 1, 2018.

In view of the unique hardships caused by the extensive repairs necessary to remedy the deteriorating concrete foundations and the comments received by the IRS expressing concern that taxpayers need additional time to make the repairs, the IRS has determined that it is appropriate to modify the safe harbor in Rev. Proc. 2017-60 to extend the time for individual taxpayers to pay to repair the damage to their personal residences.

As a result, the IRS issued Rev. Proc. 2018-14, which provides that, if a taxpayer pays to repair damage to that taxpayer's personal residence caused by a deteriorating concrete foundation during the taxpayer's 2016 tax year or earlier, the taxpayer may treat the amount paid as a casualty loss on a timely Form 1040X, Amended U.S. Individual Income Tax Return, for the tax year of payment. If a taxpayer pays to repair the damage during the taxpayer's 2017 tax year or prior to a timely filed (including extensions) original Form 1040 for 2017, the taxpayer may treat the amount paid as a casualty loss on the taxpayer's original 2017 income tax return (or a timely filed Form 1040X for the 2017 tax year).

Rev. Proc. 2018-14 also provides that, if a taxpayer pays to repair the damage after filing an original 2017 income tax return and before the last day for filing a timely Form 1040X for the 2017 tax year, the taxpayer may treat the amount paid as a casualty loss on a timely filed Form 1040X for the 2017 tax year.

The term "deteriorating concrete foundation" is defined to mean a concrete foundation that is damaged as a result of the presence of the mineral pyrrhotite in the concrete mixture used before January 1, 2018, in pouring the foundation. The safe harbor under Rev. Proc. 2018-14 is available to any taxpayer who has obtained a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete, and has requested and received a reassessment report that shows the reduced reassessed value of the residential property based on the written evaluation from the engineer and an inspection pursuant to Connecticut Public Act No. 16-45 (Act). The safe harbor also is available to a taxpayer whose personal residence is either in Connecticut or outside of Connecticut, provided the taxpayer has obtained a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete containing the mineral pyrrhotite.

Observation: For tax years 2018-2025, the Tax Cuts and Jobs Act of 2017 eliminated casualty loss deductions except to the extent the casualty is attributable to a federally declared disaster.

For a discussion of the requirements for deducting a casualty loss, see Parker Tax ¶98,101.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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