Washington – U.S. Reps. John Larson and Joe Courtney had good news Wednesday for Connecticut homeowners with crumbling foundations – the Internal Revenue Service will allow them to take a casualty loss for money spent to fix the foundations.
But that tax relief may be short-lived. The GOP House and Senate tax bills that would overhaul the federal tax code would eliminate the deductibility of casualty losses – except for those of current hurricane victims.
That means the deduction for expenses relating to crumbling foundations could disappear next year.
However Larson, a Democrat on the tax writing House Ways and Means Committee, is optimistic. While the GOP tax bill has been approved in the House – without a single Democratic vote – the Senate has yet to vote on the tax package, and the GOP can’t afford more than two defections in that chamber.
“But if this bill becomes law, casualty losses would no longer apply,” Larson said.
The GOP House bill also would eliminate the deductibility of state and local, or SALT, taxes, and the Senate bill also would eliminate the deductibility of property taxes.
At a press conference in Hartford on Wednesday, Larson called the IRS decision to allow the deductibility of costs for repairing crumbling foundations “huge” and praised Treasury Secretary Steven Mnuchin and IRS officials for responding to the needs of Connecticut homeowners.
“In terms of government response, this was incredible,” Larson said
Courtney said the IRS decision “is a great Thanksgiving story.”
The lawmakers reached out to Mnuchin because homeowners in three dozen towns in north-central and northeastern Connecticut have foundations built with concrete that contained a mineral called pyrrhotite from a quarry in Willington. Pyrrhotite expands with moisture, causing foundations to bow and crack, damage that is often not covered under a homeowner’s insurance policy.
While casualty losses are usually defined as a sudden, uninsured loss, the lawmakers say the IRS made an exception for homeowners in the southeastern United States whose homes were built with defective Chinese drywall and argued Connecticut homeowners should receive the same help.
Homeowners will be allowed to amend returns for past losses.
But Larson said the new deduction “is not a silver bullet,” and must be coupled with other forms of help to victims of the pyrrhotite-laced concrete.
Courtney has urged the state to apply for Housing and Urban Development grants to help these homeowners.
In addition, the state legislature has approved $40 million in bonding over the next two years to help homeowners pay to replace or repair failing foundations.
State lawmakers have created a captive insurance company to administer the money through a Crumbling Foundations Assistance Fund.
Larson and Courtney emphasized that the new tax break will complement the recent state action to provide aid to homeowners dealing with the crisis.
“Some are making just gut-wrenching decisions in terms of whether to continue to occupy their house, to continue to pay mortgage payments or to take the full brunt of repairing the houses,” Courtney said. The homeowners incur “huge losses” under any of those scenarios, he said.