While some blogs seem obsessed with drywall and its litigious matters, we here at this blog don't seek to lay blame, we are just concerned with how the homeowners stuck with toxic walls can get a tax deduction.
In 2006 alone, enough drywall for 32,000 homes was imported from China into the US and used to build homes in Florida, Virginia and Louisiana. People spent good money for those homes, or at least took out bad loans to finance the purchases. These homes became worthless when it was discovered that the walls were toxic. If an individual sells their home at a loss, they can not use that loss as a deduction against their income. Deductions can only typically be taken on losses from transactions entered into for profit and for casualties, and although a home is considered to be an American's biggest investment, a home purchase is not considered a "transaction entered into for profit" according the US Tax Code.
But Senators Jim Webb and Bill Nelson are doing all that they can to allow taxpayers to take a casualty loss for the houses they have purchased that used the defective drywall. The IRS is currently awaiting reports by the CPSC and the EPA before making any definitive ruling about whether these homes will be deductible as casualties.
I will hazard the guess that, absent a limited policy exception, these homes will not be deductible as casualty losses because the loss to the taxpayer is not a casualty. A casualty loss must be sudden, unusual, and unexpected. Toxic drywall, even if, as it appears, it only amounts to the emission of sulfur gases and does not rise to the level of radioactivity, is quite unusual. Whether the loss is unexpected would require a factual inquiry into the taxpayer's awareness of the possibility of sulfur-ridden drywall. Even if it is unexpected, the toxic drywall isn't sudden. It was made in a far off land, shipped here, installed, the houses were held on the market for some period of time, sold to home buyers, and then started causing problems. There is nothing sudden about that.
The casualty loss provision is simply not for losses of this nature. The kinds of losses that fall under this provision are the ones where there is some sort of event, such as a fire, a flood, or the first instance of a plague of beetles that eat your trees over the course of 5-10 days. Not the walls of your house emitting sulfur gas.
I guess we might actually need those trial lawyers to start suing away.