Published: Saturday, Jul. 11, 2009

Updated: Saturday, Jul. 11, 2009

IRS: Homeowners may write off damage from Chinese drywall

By BETH BURGER

bburger@bradenton.com

MANATEE — Richard and Nancy Nelson thought they were purchasing a dream home a few years ago.

“This was our first new house we bought. I thought it be a good way to enter into retirement with a new home,” said 68-year-old Nancy Nelson, who purchased a home in 2006 in Imperial Lakewoods near Palmetto.

Instead, the couple was plagued with headaches and eye issues. All of the appliances had to be replaced.

Most of their household items are contaminated by Chinese drywall, Nelson said.

“It’s a financial loss and a hardship. We put all of our money into the house. It was brand new,” she said. “We bought it in good faith thinking everything was fine. Then we find out it isn’t fine. Everything is worthless.”

The Nelsons may be able to write off thousands of dollars of their loss on their taxes, though.

Pending the results of studies from the Environmental Protection Agency and Consumer Product and Safety Commission, the Internal Revenue Service told U.S. Sen. Bill Nelson, D-Florida, in a letter dated July 2 homeowners would be able to get a deduction under section 165 of the Internal Revenue Code.

“If it is determined that Chinese drywall emits an unusual or severe concentration of chemical fumes that causes the extreme and unusual damage you describe, affected taxpayers can qualify for a casualty loss deduction,” according to a letter addressed to Nelson from the IRS. “The amount of their casualty loss is the difference between fair market value of their home immediately before and immediately after the casualty, limited to the adjusted basis of their home.”

Casualty losses are defined as “damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected and unusual,” according to the letter.

Sen. Nelson wrote to the IRS requesting homeowners should be able to deduct the loss of their home on their taxes since many insurance companies are not footing the costs and contractors say they are not liable, said Dan McLaughlin, a spokesman for Nelson.

Many home owners have complained the drywall “emits a putrid smell and gas causing various health problems, as well as extreme and unusual corrosion of pipes, air conditioning coils and electrical appliances,” according to the letter.

Nancy Nelson and her husband moved into a friend’s seasonal home in Venice last month. The headaches are gone. She wears her contacts again. Her silver no longer quickly tarnishes.

“I would like to write the whole place off,” she said.

The casualty loss code would not allow homeowners to deduct costs incidental to the damage such as paying for an alternative place to live.

Florida and 20 other states have had issues with Chinese drywall. Florida, Louisiana and Virginia are among the states with the highest counts.

Florida has had high numbers of cases because of the real estate boom several years ago as well as rebuilding after hurricanes, McLaughlin said. Nelson’s office looked at import data for Chinese drywall in Florida and learned up to 60,000 homes may have used the material, he said.

“That’s a staggering figure if you have up to that many homes built with Chinese drywall,” he said. “These people have had to move out of their house. They are paying for a place to live and at the same time paying for their house. ... You can’t allow that situation to exist. That situation befalling people in numbers possibly as high as the import figures might go made us have a sense of urgency about it.”