The IRS has provided a casualty loss safe harbor for individuals whose personal residence has a deteriorating concrete foundation containing the mineral pyrrhotite. The safe harbor treats certain damage caused by such a foundation as a casualty loss. In addition, the safe harbor provides a formula for determining the loss amount. Accordingly, the IRS will not challenge a taxpayer’s treatment of such damage as a casualty loss if the taxpayer follows the safe harbor procedure. The safe harbor is effective for federal income tax returns (including amended federal income tax returns) filed after November 21, 2017.
Casualty Loss Safe Harbor
This safe harbor applies to taxpayers:
- who obtained a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete;
- requested and received a reassessment report showing that the reduced assessed value of the property is based on the engineer’s written evaluation; and
- an inspection pursuant to Connecticut Public Act No. 16-45 (Act).
Taxpayers with a personal residence outside of Connecticut may use the procedure. However, the taxpayer must have obtained a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete.
Claiming the Loss
To claim a casualty loss, a taxpayer must report the loss on Form 4684, Casualties and Thefts. In addition, the taxpayer must write “Revenue Procedure 2017-60” at the top of the form. Taxpayers are subject to the $100 limitation imposed by Code Sec. 165(h)(1) and the 10-percent-of-AGI limitation imposed by Code Sec. 165(h)(2).