Reps. Courtney, Larson Receive Tax Clarification from IRS for Homeowners Impacted by Crumbling Foundations Crisis
WASHINGTON, DC – Today, Congressmen Joe Courtney (CT-02) and John Larson (CT-01) announced that the Internal Revenue Service (IRS) has provided them with clarifying information that will offer additional tax relief to homeowners affected by the crumbling foundations crisis. In a letter to Congressman Courtney, the IRS confirmed that homeowners with crumbling foundations can apply for the federal casualty loss deduction to certain repairs linked to fixing their crumbling foundation not covered by the Connecticut Foundations Solutions Indemnity Company (CFSIC). Specifically, the IRS’s letter confirms that if the repaired structures was damaged by the crumbling foundation or needed to be damaged or destroyed to repair the foundation, the cost of the repair of this item would be eligible for federal tax relief under the Revenue Procedures that the IRS has published.
“Today’s clarification from the IRS is more forward momentum for homeowners in our region impacted by the crumbling foundations crisis,” said Congressman Courtney. “The process of repairing a home’s foundation can come along with collateral damage, and those damages and subsequent repairs should qualify under the federal casualty loss deduction. CSFIC has already provided excellent assistance for homeowners needing to make crumbling foundations repairs, and for many homeowners with tens of thousands of dollars in remaining costs even after their claim by CSFIC was approved, this guidance from the IRS takes another step towards making them financially whole.”
“This is good news for homeowners who suffer stress and uncertainty from the discovery of crumbling foundations in their home,” said Congressman Larson. “They should not have to worry that fixing the problem will cost them even more money or damage to their home. Additional damage that occurs beyond a foundation to a home as a result of fixing a crumbling foundation will now be rightfully covered under the federal casualty loss deduction. I thank the IRS for their guidance and Congressman Courtney for his leadership on this issue.”
“Because we’ve just raised our first house on April 3, this comes as incredibly welcome news,” said Michael, Superintendent of Connecticut Foundations Solutions Indemnity Company, Inc. “Within the next four weeks we will raise three dozen houses, and this will make all the difference in the world to the victims of this crisis.”
After hearing from homeowners who had questions about the interaction between CFSIC’s coverage of crumbling foundations repairs and the casualty loss deduction, on February 28, Courtney wrote to IRS Commissioner Charles Rettig to inquire as to whether the agency would deem certain expenses not directly related to restoring the structural integrity of a home’s foundation as eligible for casualty loss deduction. In his letter, Courtney noted that CSFIC (also known as the “captive” insurance company) is capped at paying $175,000 per home with a crumbling foundation, and is limited to only paying for expenses pertaining to repairing the crumbling foundation itself to a structurally safe condition. In their response, the IRS made clear that certain other fixes could also be eligible for casualty loss deduction.To read the letter that Congressman Courtney sent to the IRS,click here.
To read the letter from the IRS, which provides examples of allowable expenses,click here.
In October of 2018,Courtney and Larson announced that the IRS would allow homeowners with crumbling foundations to carry forward or carry back a net operating loss, should their casualty loss to fix their foundation exceed their annual tax liability. This clarification means that even if the net loss suffered by a homeowner exceeds their annual federal tax liability, they can carry forward that loss for up to 20 years.
In November of 2017, the IRS issued Rev. Proc. 2017-60 to enact a “safe harbor” for the treatment of crumbling foundation-related repair costs as a “casualty loss” deduction from a taxpayer's taxable income under Section 165 of the Internal Revenue Code.
The Republican tax-overhaul signed into law in December, temporarily limits the applicability of Section 165. Under the law, beginning in tax year 2018 only taxpayers who suffer damage related to a presidentially-declared Stafford Act disaster may deduct their property-casualty losses. This provision expires in 2025.
In a December 21, 2017 letter to Courtney and Larson, the IRS confirmed that homeowners who had already completed repairs to their home before the end of 2017 would be able to claim the costs on their federal tax returns for 2017, or any open prior year.'
Taxpayers have three years from the date they filed their original tax return to file Form 1040X to amend their return (and claim this deduction). The updated revenue procedure extends the “safe harbor” through the period that 2017 returns can be amended, expected to be the filing season in spring of 2021.
Homeowners should consult with a qualified tax preparer to see if they qualify for this deduction