Can home construction losses be deducted.

Can I deduct the loss.

It depends on the nature of the loss.  It would not be a deductible loss if it was merely shoddy workmanship.  However, two deductible categories come to mind:

• It may be deductible as a  theft loss (casualty loss) if the contractor fraudulently took your money and left.  You would need documentation such as a police report if that happened.
  
• It may be deductible as a non-business bad debt if the contractor went bankrupt and owed you for payments on incomplete work.

The basis of the home will include all costs to improve the property so even if you cannot claim a "loss" you haven't really lost anything, it just cost you more than expected.

For a theft loss or bad debt, there certainly was an actual loss and perhaps a tax loss.  The loss, in effect, would be the outlay that had to be paid again to others.  The fact that it may add to the basis of the residence is small consolation for the amount of needless money spent.

I paid a marble contractor 1/2 deposit of $2500; he took my money, started the job work, walked off the job without returning the money.  I then hired a second contractor to install marble I purchased. He installed the wall marble improperly destroying the marble I lost an additional $4280 before finding a real contractor.  He had to ripe out all of the previous work and start over, he finished the job for $3500 plus I had to repurchase all the material and marble a second time.  I filed a suit against the second contractor but first the sheriff, then a server processor could not locate him.  

Can I deduct the loss monies for the destroyed marble, materials and contracted labor? Can the cost to file for the suit be added to the loss?