After several years of drought, we had heavy, heavy rain and water pooled against the house, followed by a lot of mold in the kitchen. Can we deduct the repair costs?

[caseym]

Recap:

After several years of drought, we had heavy, heavy rain and water pooled against the house, followed by a lot of mold in the kitchen. Can we deduct the repair costs?

The mold was all along the outside wall where the water pooled.  Remediation required that the sink area and 1/3rd of the counter and lower cabinets be removed, along with flooring and subflooring. leaving us with an unusable kitchen.  Assuming that similar materials were available, the repair to "original" cost was about $20K.  We opted to upgrade since similar materials were not readily available (particularly the cabinets).  Our eventual cost was $50K. 

Can we deduct the $20K as a casualty loss, with the difference added to the basis?

[Opus 17 · Accepted solution]

Mold arising out of a sudden and unpredictable flood would be part of the casualty loss.  But the way you frame the question makes me think you have doubts yourself.  It sounds like you recognize that the drainage around your house was improper, but it had not caused problems before because the weather had been dry.

I think this is something you have to decide on your own based on the circumstances.  If you had a known drainage problem for years with small rainfalls but it never stayed wet long enough to damage the house, that might be seen as an ongoing problem not eligible as a casualty.  But if it's been so dry that you never even had the opportunity to discover that the drainage was bad until this year, that might be a casualty.  If you claim it as a casualty, and if you get audited, you will need to be able to convince the examiner of your position.  It's your risk to decide to take.

[caseym]

Thank you opus, you have pretty much summarized my thinking.  During the drought we added gutters on the eaves, and their drainage contributed to the problem, but that wasn't clear until it happened.