IRS relief for Corrosive Drywall

So many houses in the Tampa Bay area have been aflicted with Corrosive Drywall that I felt compelled to research the topic!
New legislation allows taxpayers to seek relief under IRS Revenue Procedure 2010-36, which addresses tax implications of corrosive drywall and the resulting economic loss. The procedure addresses what constitutes a deductible casualty loss, the tax year in which the loss is deductible, and how to compute the amount of the loss. It provides a safe harbor method for determining the amount of the loss.

Under the safe harbor, a taxpayer who does not have a pending claim for reimbursement of damages and does not intend to pursue reimbursement may claim a loss of all unreimbursed amounts paid during the tax year to repair damage from corrosive drywall to the taxpayer’s personal residence and household appliances. If there is a pending claim for reimbursement or an intention to pursue reimbursement, a taxpayer may claim only 75% of the unreimbursed amounts paid to repair the damages. Income or an additional deduction may arise in a subsequent tax year, depending on the amount of any reimbursement actually received.

The revenue procedure carries a drawback of basing the amount of the deduction on payment for repairs rather than a calculation of decrease in fair market value as a result of the casualty (limited to the taxpayer’s basis in the property), that is otherwise allowed as a method under Treas. Reg. § 1.165-7(b).

However, the revenue procedure gives taxpayers certainty that the IRS will not challenge treatment of the repairs as a casualty loss under the requirement that a casualty is the result of an “identifiable event” that is “sudden, unexpected, and unusual” rather than the result of “progressive deterioration.”