Some Chinese drywall losses may be tax deductible, IRS says

Hampton Roads residents with homes plagued by Chinese drywall may be entitled to claim tax deductions in the tens of thousands of dollars, according to an IRS memo responding to a complaint from Sen. Jim Webb, D-Va.

The memo, released Friday by the IRS, said that any loss of home value due to Chinese drywall within the current taxable year could be counted towards tax returns. The damage could not be covered by insurance.

The IRS said it will examine each case individually, however, the formula for reimbursement will roughly equate to the current value of the home subtracted from the value before the drywall began to cause issues. The remainder will be able to be filed as tax deduction.

Homeowners in Hampton Roads have been on their own dealing with Chinese drywall, which numerous homeowners report causes corrosion of electrical systems and emits a putrid smell. Some homeowners said the chemicals from the drywall are causing ongoing health problems.

Many homeowners facing the drywall moved into other residences, yet continue to pay their mortgages in addition to whatever they're paying for their new housing arrangements. The memo said that these costs would not be tax deductible as they are considered as “incident to the casualty.”

Sen. Webb said he hoped the news would give homeowners "some financial relief."

- Michael White