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Chinese Drywall Victims May be Able to Take Casualty Loss Deduction

Dec 11, 2009 | Parker Waichman LLP

The Internal Revenue Service (IRS) says some Chinese drywall victims may be eligible to take a casualty-loss deduction on their federal taxes.

To be eligible, a homeowner must be able to provide "expert" documentation of sudden, unusual and unexpected damage from Chinese drywall.  The mere presence of Chinese drywall in a home is not enough to qualify to take the deduction.  Also, homeowners who have a reasonable expectation of reimbursement through their insurance or some other source would not be eligible for a casualty-loss deduction.
So far, the Consumer Products Safety Commission (CPSC) has received 2,276 reports from residents in 32 states, the District of Columbia, and Puerto Rico concerning Chinese drywall. It is estimated that as many as 40,000 homes nationwide could contain Chinese-made wallboard.

The drywall problems have forced many people out of their homes, and some families are dealing with the heavy financial burden of paying both rent and mortgage payments. Those unable to afford additional rent have no choice but to stay in their potentially hazardous homes.

Tests recently released last month by the CPSC of 51 homes confirmed that the presence of hydrogen sulfide is the essential component that causes copper and silver sulfide corrosion found in Chinese drywall homes.  The CPSC is still trying to determine if the Chinese drywall poses any long-term health risks or other hazards.

The Chinese drywall debacle has spawned hundreds of lawsuits against the companies that manufactured the tainted wallboard.  Over the summer, pending federal Chinese drywall lawsuits were consolidated in a multidistrict litigation in U.S. District Court, Eastern District of Louisiana.  The first trials in that litigation are expected to begin in January.

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