The Internal Revenue Service (IRS) is offering a tax break to homeowners who have incurred a property loss due to having defective (Chinese) drywall installed in their homes between 2001 and 2009. Reparations will be treated as casualty loss and home owners can file an amended tax return in order to claim their deduction. If you have already filed your income tax return for the year of payment, you can still claim it since there is a three year period to file the amended return.
The Problem
Courtesy of US Consumer Product Safety Commission
Tainted drywall emits gases blamed for corroding pipes and wiring, and for nosebleeds and coughs in homes nationwide. The U.S. Consumer Product Safety Commission still is investigating and has advised homeowners to replace tainted drywall along with wiring, pipes, sprinkler systems and smoke alarms.
This specific type of drywall is alleged to contain high levels of sulfur, which causes corrosion in copper piping and wiring within houses, as well as within electronics and appliances such as air conditioners, washing machines, and refrigerators. There has not been much conclusive evidence to pinpoint the reason for the drywall's toxicity, although a popular theory is that the drywall became tainted from being manufactured in gypsum mines, which used coal fly ash, a waste by-product from power plants. When coal fly ash leaks into the air, it can potentially emit sulfur compounds.
Chinese-manufactured drywall came into the U.S. in large amounts between 2004 and 2007 due to a domestic shortage during the peak of the housing boom. The drywall, made from waste material from coal-fired plants, has caused a number of issues for homeowners in recent years, hitting especially hard in the southeastern United States.
Courtesy of Madgerly.
The Remedy
The proposed remediation procedure involves the spraying of a biocide specially formulated to penetrate walls and kill bacteria suspected of causing the problem. Then, any bad drywall is removed and potentially contaminated dust is vacuumed up before a second treatment with the biocide.
The remediation procedure is said to come with a guarantee of 10 years, provided annual inspections are conducted by the remediator. A monitor is used to record temperature and humidity levels.
Courtesy of bradley j.
The proposed remediation procedure is said to come with a price tag of $86 to $96 per square foot and does not preclude a homeowner from pursuing litigation against a contractor or supplier down the road. To that end, state licensed mold remediators were cautioned to preserve enough of the drywall as legal evidence should the homeowner want or need to sue over Chinese drywall.
IRS Tax Break
In order to claim the deduction, homeowners must have started fixing their homes and spent $100 ($500 for taxable years beginning in 2009 only). In addition, the net amount of the loss is allowable only for the amount of the losses that exceed 10% of the homeowner's adjusted gross income for the year. The deduction amount will depend on whether the homeowner has a pending claim for reimbursement through property insurance or litigation for their drywall losses. Owners who do not have pending reimbursement claims may file for all their lost expenses. If they have a pending claim, they can file a loss for 75% of the unreimbursed amounts paid for the repairs.
Defending Your Actions
Repairs could cost billions. Enough Chinese drywall was imported in recent years to build 60,000 homes. Contractors estimate it would cost $85 per square foot to tear out all of a house's drywall and replace it, which would total $170,000 for a 2,000-square-foot house. Replacing wiring and appliances would cost even more.
Homebuilders that believe they have a potential Chinese drywall problem should immediately take steps to mitigate potential damages. The following are recommended:
· Notify your insurance carriers (builder's risk insurers if your project is not yet complete).
· Collect all applicable subcontractor and supplier insurance policies.
· Notify potentially at-risk subcontractors or suppliers.
· Confirm whether an architect or construction manager specified the use of or expressly approved the use of Chinese drywall.
· Inform property owners.
· Hire a consultant through an attorney to inspect the property.
· Conduct a visual inspection of any exposed drywall to see if you can ascertain a manufacturer.
· Define a protocol to respond to Chinese drywall problems.
Taking affirmative steps to remediate the problem will provide several benefits. These include proof of an attempt to mitigate damages (which will prove useful in subsequent claims against insurers, installers and suppliers), the fulfillment of warranty obligations (which will limit future claims), the potential for obtaining liability waivers and positive press.
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