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Can I take a tax loss for water damage to my home that happened over years of water coming through brick mortar holes? $45,000 repairs.

We had to have work done in our crawl space, replace floor and wall joists, remove and replace some floors and walls, and remove and rebrick our home due to the damage caused by the water leaking into the walls through holes in our brick mortar.  It cost us nearly $45,000.  Insurance paid nothing since this was not storm related or a result of broken pipes.

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Can I take a tax loss for water damage to my home that happened over years of water coming through brick mortar holes? $45,000 repairs.

Unfortunately this is not a casualty loss because it was gradual damage over time.

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Can I take a tax loss for water damage to my home that happened over years of water coming through brick mortar holes? $45,000 repairs.

A Casualty loss must be sudden. Slow leakage is not.

Can I take a tax loss for water damage to my home that happened over years of water coming through brick mortar holes? $45,000 repairs.

Major leak all of a sudden as soon as we moved in to a house ruined the ceiling parts to the tub had to be replaced and the ceiling

Can I take a tax loss for water damage to my home that happened over years of water coming through brick mortar holes? $45,000 repairs.

Unfortunately this is not a casualty loss because it was gradual damage over time.

Carl
Level 15

Can I take a tax loss for water damage to my home that happened over years of water coming through brick mortar holes? $45,000 repairs.

No. But what you have here for tax purposes is not repairs. It's classified as "Property Improvements".

Property Improvements add to the cost-basis of your house (what you paid for it, basically). This will be of value only when one of three things happens later in your life.

1) If you convert the property to a rental dwelling and rent it out, the "property improvements" will increase the amount of depreciation you take each year the property is classified as residential rental real estate.

2) If you sell or otherwise dispose of the property, those property improvements, when added to your cost-basis, will decrease the amount of taxable gain you may receive on the property, if you sell it for more than your adjusted cost basis.

3) If you die, the property improvements will increase significantly the  "inheritied" cost basis to your heirs. That way, items 1 and 2 above will apply to your heirs, based on the FMV of the property at the time of your passing.

So you need to keep all your paperwork and receipts for this cost *forever*. I suggest you file it with the HUD-1 closing statement you received at the closing when you purchased the property. Here's the clear cut definition of a property improvement.

Property Improvement

Property improvements are expenses you incur that add value to the property. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property. You have no guarantee a perspective buyer or tenant will like the color, and the property appraiser knows that.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.


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