The IRS has revised the relief granted in Revenue Procedure 2017-60 by issuing Revenue Procedure 2018-14. The procedures apply to individuals who have damage to the concrete foundations of their personal residences caused by the presence of the mineral pyrrhotite.
As was described in the article that discussed the original relief provision posted on Current Federal Tax Developments:
The issue affects residents of the Northeastern United States due to the presence of pyrrhotite in the concrete mixture used to pour the affected foundations. The IRS notes that this is a mineral that naturally occurs in stone aggregate which is used to produce concrete. The mineral oxidizes in the presence of water and oxygen, leading to the formation of expansive mineral products and causing the concrete to deteriorate prematurely.
That original notice was issued at the end of November 2017. In that notice, if the taxpayer obtained specific evidence from an engineer stating that the foundation contained the tainted concrete, a personal casualty loss deduction would be allowed in the year the repairs were paid for.
Less than a month later Congress passed Pub. L. 115-97 (the Tax Cuts and Jobs Act) that eliminated the ability to deduct personal casualty losses after the 2017 tax year. Not surprisingly, that lead many in the affected area to cry foul, arguing that to cut off relief so quickly was unfair.
The IRS has come up with a somewhat unique approach to fixing the problem, effectively allowing the payments for repairs to be made after December 31, 2017 but still be reflected as a loss on the 2017 income tax return.
The ruling provides the following rules for when a deduction is to be claimed for the damage caused by pyrrhotite (so long as the pyrrhotite existed in the foundation before January 1, 2018):
- If a taxpayer pays to repair damage to that taxpayer's personal residence caused by a deteriorating concrete foundation during the taxpayer's 2016 taxable year or earlier, the taxpayer may treat the amount paid as a casualty loss on a timely Amended U.S. Individual Income Tax Return (Form 1040X) for the taxable year of payment.
- If a taxpayer pays to repair the damage during the taxpayer's 2017 taxable year or prior to a timely filed (including extensions) original U.S. Individual Income Tax Return (Form 1040, 1040A or 1040EZ) for the 2017 taxable year, the taxpayer may treat the amount paid as a casualty loss on the taxpayer's original 2017 income tax return (or a timely filed Form 1040X for the 2017 taxable year).
- If a taxpayer pays to repair the damage after filing an original 2017 income tax return and prior to the last day for filing a timely Form 1040X for the 2017 taxable year, the taxpayer may treat the amount paid as a casualty loss on a timely filed Form 1040X for the 2017 taxable year.
The relief pushes the final date to make and pay for the repairs to a date more than three year later than would have occurred under the prior revenue procedure.
The provision still applies under the other conditions contained in the original procedure, specifically limiting relief to those who meet the following criteria:
The safe harbor under this revenue procedure is available to a taxpayer who has obtained a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete, and has requested and received a reassessment report that shows the reduced reassessed value of the residential property based on the written evaluation from the engineer and an inspection pursuant to Connecticut Public Act No. 16-45 (Act). The safe harbor also is available to a taxpayer whose personal residence is either in Connecticut or outside of Connecticut, provided the taxpayer has obtained a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete containing the mineral pyrrhotite.