Discussion:Black Mold Casualty Loss
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| {{ForumReplyPost|UserID=Riley2|Date=28 August 2008|Text=However, if the sellers made deliberate misrepresentations, there may be a deductible theft loss.}} | {{ForumReplyPost|UserID=Riley2|Date=28 August 2008|Text=However, if the sellers made deliberate misrepresentations, there may be a deductible theft loss.}} | ||
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| + | {{ForumReplyPost|UserID=Sheldon|Date=28 August 2008|Text=It does seem to be a case of deliberate misrepresentation by the sellers. I do not think there is a police report. The client may just have record of some discussions that took place with the realtors, insurance people and the like. So I am looking for good suggestions for minimum documentation that the client needs to be ultimately successful with it as we might go ahead with the theft angle.}} | ||
Revision as of 19:31, 28 August 2008
Discussion Forum Index --> Tax Questions --> Black Mold Casualty Loss
| 2 April 2006 | |
| New client relocated here and she sold home in Chicago for profit (100k). However, in reviewing last 3 years returns she had "black mold" in her home in 2002 which was NOT reimbursed thru insurance. She spent about 30k to rid the mold and did not take a casualty loss for this. She bought the home in 2002 for 350k and the realtors did not know/absolved themselves of any liability. Could not go back against the prior owner. Oh well! Can she amend the 2002 return for this loss at that point? And, now that the house sold how do we "prove" a loss in value? Any input would be helpful. Thank you for all your help. | |
| 2 April 2006 | |
| I don't think you have to do anything. Taking a loss against the home reduces the basis. The home was sold, I believe, at its unadjusted original basis (That's where you account for the loss). She got a benefit. Not necessarily a tax benefit but a benefit. Besides, it may be too late to amend. | |
| 3 April 2006 | |
| Unless your client suffered "sudden or unexpected" damage to her home while she owned the property, she is not entitled to claim a casualty loss. This usually means that the mold must be the result of a single flood or storm occurring during her period of ownership. In this case, the mold damage probably occurred prior to the period of her ownership, and no deduction is allowed. | |
| 3 April 2006 | |
| Monday, April 03, 2006
Hello, Waynec. The appearance of black mold in a house is a gradual process, and does not happen suddenly. The Internal Revenue Service does not categorize a gradual deterioration as a business, or nonbusiness, casualty. It must be sudden, and disaster-like, or be a theft of personal property, such as an automobile. The $ 30,000.00 spent by your client in 2002, to rid her house of black mold, is not a business, nor nonbusiness, casualty loss. Her 2002 individual income tax return is correct, as filed, and there is no need to amend it. Thank you.
Business Address: 20 Ford Court, Meadow Glen, Monroe, New York State 10950 - 4946 Business Telephone Number: (845) 782 - 5228 Business Facsimile Number: (845) 782 - 5582 Business E - Mail Address: meadowglenatmonroe@frontiernet.net 911...Four Years...Six months...23 days..Always Remember...Never Forget | |
| 3 April 2006 | |
| Thank you for your reply. But, I should have been more clear on the circumstances. She bought the house in 2002 and after moving into it (2 mos or so) everyone was getting sick. That's when they discovered the black mold! The realtors scattered and the homeowner couldn't be held liable since he did not know. She wound up with a huge expense and related problems. I sincerely appreciate hearing from you. Thanks again. Wayne | |
| 3 April 2006 | |
| Looks like you would just add the $30000.00 to the cost $350,000 of the home. Basic in home now $380,000. or am I missing something. | |
| 18 May 2006 | |
| If everyone was getting sick, couldn't they claim a medical expense deduction, deducting costs over 7.5% of AGI. Since these repairs/improvements are not increasing the value of the home, but are to remove the source of the family's ailment, I would say that one could take a medical expense deduction... Any thought's - - anbody?? | |
| 19 May 2006 | |
| I don't think that it qualifies as a medical expense either. If I was the buyer I think I'd have hired a private investigator to find out if the sellers knew about the mold. You can bet that they knew if everyone was getting sick in buyers family. In Calif a buyer must disclose a known defect when selling real estate, I believe many states have a similar statute. | |
| 19 May 2006 | |
| FSauce has a good idea, but it wouldn't work in this case. The reason is that the FMV does increase due to the repair. As soon as the mold was discovered and an estimate of $30K for repairs was needed, the FMV would have dropped by the same amount. The repairs would have raised the FMV back up when they were completed. | |
Michaelstar (talk|edits) said: | 19 May 2006 |
| This is a major repair and I would add the $30,000 to the basis of the home. Minor repairs are not added to basis but $30K in repairs on a $350K home should not be written off. The only issue I see is that this home was a personal residence so most likely the gain would not have been taxable under sec 121 anyway had she lived in the home for at least two years of the last 5. Or if one of the many exceptions applied, there would at least be part of the $250/$500K sec 121 allowance could be utilized. | |
| 19 May 2006 | |
| I would probably add it to basis too since the problem existed when purchased. But there is nothing that says major repairs costs can be added to basis. If this had been 10-15 years after they owned the house and the repairs were just getting the house back to where it was then there is no basis increase even though it might be costly to fix. Improvements get added to basis but repairs don't. | |
Michaelstar (talk|edits) said: | 19 May 2006 |
| Warren & Wayne - I do agree that repairs are not added to basis - and we both seem to agree that we would add the $30K to basis.
Reason why: When reading reg 1.162-4 - repairs - it talks about when repairs in the nature of replacements, to the extent that they arrest deterioration and appreciably prolong the live of the property, shall either be capitalized....... The distinction between repairs and improvements is made on the basis of the type of expendure, considering all the facts and circumstances. In a case like this, I would guess that a wall or two had to be taken out and replaced, new tile added, new plaster or drywall etc. I would be agressive and not consider this type of repair incidential but note in my workpapers that it did materially add to the value of the home and appreciably prolonged the useful life of the property. I would also discuss with the client that if the transaction was audited, there is a risk of change but I would consider that risk of change even in audit to be very remote. | |
Hew Jackson (talk|edits) said: | 5 April 2007 |
| Has anyone seen PLR200607003, where IRS says the cost of mold remediation is deductible under Sect 162? This is for a landlord fixeing his rental property, and I would like to know how this PLR logic applies to a homeowner with same problem.
I had thought medical deduction would be the way to go, since problem was not sudden, like a bolt of lightning striking. | |
| 27 August 2008 | |
| I have a client who bought a home and moved in as their personal residence. Within a day or two of moving in, they realized they had a major odor problem. It turns out that there major prior pet problems that been hidden from the realtor, inspector, appraiser, etc. They had to move out, store their items, replace the flooring, etc and then could move back in. He said they attempted some action against the seller, realtor, inspector but nothing much came of it. Seems like this should qualify as a loss, but find it difficult to classify as either a casualty or theft. Is there any other thoughts on whether there is any tax event here? | |
| 28 August 2008 | |
| Not a casualty loss since the damage occurred prior to their ownership. Might be a basis for a lawsuit, but I see no relief from the taxman. | |
| 28 August 2008 | |
| However, if the sellers made deliberate misrepresentations, there may be a deductible theft loss. | |
| 28 August 2008 | |
| It does seem to be a case of deliberate misrepresentation by the sellers. I do not think there is a police report. The client may just have record of some discussions that took place with the realtors, insurance people and the like. So I am looking for good suggestions for minimum documentation that the client needs to be ultimately successful with it as we might go ahead with the theft angle. | |
