Feds Endorse Tax Relief for Crumbling Foundations

U.S. Reps. Congressman Joe Courtney (CT-2) and John Larson (CT-1) on Wednesday said a new system of federal tax relief for homeowners dealing with crumbling foundations has been established.

The relief, released Wednesday an Internal Revenue Service “revenue procedure,” follows nearly 19 months of work by the two members of Congress.

“Today, the federal government has said yes to helping homeowners struggling with the cost and damage of crumbling foundations,” Courtney said. “This is the culmination of a 19-month process with the Treasury Department, IRS, and the National Taxpayer Advocate to get federal recognition of the severe property casualty loss that north central and eastern Connecticut homeowners are struggling with.

"This tax guidance adds a powerful new tool to the toolbox of options for homeowners and communities looking for way to get their arms around this extensive and long-term problem for our region. The origins of this effort started at the grassroots level from homeowners speaking out at community meetings and from Connecticut’s CPAs who urged Washington to extend casualty loss deduction to this problem. I thank Assistant Secretary Kautter, Secretary Mnuchin and former IRS Commissioner Koskinen for their personal attention and commitment to this issue - today’s announcement reflects their recognition that this is a severe problem requiring immediate attention. I look forward to continuing to work with my partner in this effort, Congressman John Larson, and officials from Treasury and IRS to make the implementation of this guidance as smooth as possible for homeowners and their communities.”

Added Larson, “The individuals and families in Connecticut with crumbling foundations have been experiencing an ongoing nightmare. While there is no one silver bullet solution to make up for the loss experienced by these homeowners, today’s announcement by the U.S. Department of Treasury will provide at least some degree of relief for many of them. It is the first time that the federal government has acknowledged the unique harm Connecticut residents have suffered through no fault of their own.

"I’d like to thank the IRS, the Department of Treasury, the National Taxpayer Advocate, and especially all of the homeowners who have reached out to my office to share their stories and allowed me to tour their homes,” said Larson. “Our work is not done. Rep. Courtney and I will continue to engage with the administration and colleagues on both sides of the aisle to pursue every possible avenue at the federal level to provide relief for these homeowners.”

Under current federal tax law, taxpayers may deduct a casualty loss from their income if they have suffered a sudden loss due to fire, flood, theft, or other sudden and unusual causes, Courtney said.

The damage was the result of pyrrhotite being present on a batch of concrete from a Stafford quarry and has affected construction ion the 1980s int to the 1990s.

While pyrrhotite-related damage develops over time, Courtney and Larson have been seeking IRS guidance to allow a casualty deduction related to the longer-term damage, citing the precedent of IRS assistance to homeowners affected by corrosive Chinese drywall in 2010.

The new guidance, released Wednesday by the Treasury Department, approves requests by the two for federal tax relief.

Specifically, the guidance allows for the treatment of crumbling foundation-related repair costs as a “casualty loss” deduction from a taxpayer's taxable income.

The change is effective immediately, and taxpayers are allowed to submit amended returns.

Click here to read the guidance.

Starting in 2016, Courtney, Larson their staffs began researching the process of issuing a revenue procedure for crumbling foundation relief and began reaching out to IRS staff.

In May 2017, they consulted with then-IRS Commissioner John Koskinen, who supported the use of the 2010 precedent and agreed to weigh in with Treasury Department, Courtney said. The former Commissioner remained engaged on the issue as his term ended this month.

Courtney and Larson then wrote to National Taxpayer Advocate Nina Olson, urging her support for applying the deduction to the crumbling foundation situation, which she gave, Courtney said.

The next step was sending a letter to Treasury Secretary Steve Mnuchin. The Treasury Department’s Office of Tax Policy has the authority to make a decision on providing such tax relief. Thje letter was supported by Rep. Richard Neal, the Ranking Member of the House Ways and Means Committee.

In September, Courtney and Larson met with Mnuchin and Assistant Secretary for Tax Policy David Kautter at the Department of the Treasury headquarters in Washington, D.C. and requested that the Treasury Department issue an IRS “revenue procedure” that to allow homeowners to deduct foundation repair costs from their federal taxes.

In a September 26 follow up letter to Kautter, Courtney and Larson provided additional information to help guide the department’s consideration of their request.

The Connecticut Society of CPAs also issued a letter in support of the effort in September.

Photo Credit: Joe Courtney's office