Asbestos removal expenses deductible?

[IreneS · Accepted solution]

It depends on whether you are talking about your personal home or a business/rental property.

Personal home

No.  The expense is not deductible.  However you can consider the treatment as an "improvement" and add the cost to the basis of the property, which will reduce any gain when you sell the home in the future.

Business or Rental Property

Maybe.  If the removal is for a business or rental property, it depends on the type of treatment. 

In TAM 9240004 and TAM 9411002 the IRS stated that encapsulation (wrapping of exposed and damaged pipe insulation) is deductible. 

However, asbestos removal costs are not deductible as ordinary repairs and maintenance, but instead must be treated as capital expenditures.  [Environmental Aspects of Real Estate and Commercial Transactions: From Brownfields to Green Buildings by James B. Witkin, 3rd Edition Edition, Feb 22, 2005]

[frederick4153]

On personal home, what do you mean it will 'reduce any gain'?

[IreneS]

When you sell your property in the future, your gain is:  Sales price minus adjusted basis (what you paid for the property plus any improvements (like removing the asbestos).

[KikiMo]

We had an investment property that we ended up selling at a substantial loss (due to when we purchased the home as a “fixer upper” the inspector overlooked some major repairs one being the foundation). We started the renovation process which included testing for asbestos, which came back positive and removing the asbestos. When entering the purchase price we paid for the investment property along with the sales price, in the investment property loss do we/can we include the total cost for asbestos abatement removal along with engineering planning costs?

[PattiF]

Yes, when you enter the sale of the investment property you can use the engineering costs and asbestos abatement.  You will enter the proceeds of the sale and the cost basis of the house to record the sale.

The cost basis is the purchase price of the house plus any improvements that you made to the property which include the engineering costs to fix the foundation and the asbestos abatement removal. 

To qualify as an increase in the adjusted basis when you sell, the home improvement must:

• Add materially to the value of your home; or
• Prolong your home's useful life significantly; or
• Adapt your home to new uses

Here are some examples of improvements:

• Remodels and room additions (including decks and porches)
• New or upgraded landscaping, irrigation, sprinkler system
• Hardscape such as pavement, block or retaining wall, patio
• Fencing
• Swimming pool, spa
• Storm windows, doors
• New roof
• Central vacuum or security system
• Upgraded wiring, plumbing, ductwork
• Central heating, AC, humidifier
• New furnace, water heater
• Filtration, soft-water, or septic system
• Built-in appliances
• New flooring or wall-to-wall carpeting
• Upgraded insulation
• Satellite dish

Other expenses found on the settlement statement that can be added to the basis are:

• Title fees
• real estate commissions
• documentary stamps
• credit report costs
• costs of an abstract
• transfer taxes
• home inspection
• flood certificate
• attorney fees, etc.  

@KikiMo