The entire 1st floor of my house took on major water damage due to a main line break under the house, which also caused sewer water contamination. The plumber spent a month re-doing the pipes & changed the routing completely. The sewer water damage meant we needed water remediation, & the entire 1st floor was demo'd. We hired Service Masters to clean & demo & a contractor to do the rebuild for us. There were A LOT of losses due to sewage water contamination & not everything was covered by insurance. I don't know what is deductible & what isn't, & I don't know where to find it.
The lower portion of all walls on the 1st floor were replaced & painted, and in the process of cutting a portion of wall out the demo crew accidentally cut through electrical wires necessitating an electrician coming out to do repairs. All cabinets in the kitchen & 2 bathrooms were removed & replaced with new. All door frames & doors were removed & replaced with new & painted. The bottom wall molding was removed & replaced with new. All sewage water damaged appliances in the kitchen had to be replaced (fridge/freezer & dishwasher). The kitchen sink, including garbage disposal, & faucet, was damaged by the demo crew & thrown away, so was replaced. The kitchen countertops were replaced because the demo crew threw them away with the cabinets they sat on top of. All of the flooring on the entire 1st floor was removed & replaced due to sewage water damage. The walk in shower needed to be replaced due to sewage water contamination. All of our living room, bedroom, & office furniture was contaminated by sewage water & had to be replaced. Then we had to replace a large part of the roof after the contractor painted & noticed a leak.
Homeowner's insurance put us up in a Townhouse for 7 months, but we had to pay a large deposit to ALE Solutions that we won't get back. We also had to pay a large deposit to the Townhouse that we won't get back. Insurance took care of some of the repairs to our house, but we had to pay the balance. This was an incredibly expensive year for us.
How much of this deductible? What kind of deduction is it? My neighbor said we should be able to take a capital loss, but somebody else said we could claim building costs for a major repair/remodel. My problem is that thee bill I have from my contractor doesn't tell me the cost of materials & he bought almost everything himself - except kitchen appliances, sinks, faucets, garbage disposal, knobs for cabinets, doorknobs, & furniture. The bill just shows total due at various times during rebuild, plus 10% overhead & 10% profit.
Thank you in advance for your help.
I am sorry for your unfortunate circumstances.
The unreimbursed expenses you incurred for your home repairs will be capitalized, that is, added to the cost basis of your home, not deducted on your tax return. This cost basis will be subtracted from the sales price of your home if you sell it sometime in the future.
You can deduct the sales tax paid to the contractor on Schedule A of your return if you itemize your deductions as if: The tax rate was the same as the general sales tax rate and any of the following applies:
a. Your state or locality imposes a general sales tax directly on the sale of a home or on the cost of a substantial addition or major renovation.
b. You purchased the materials to build a home or substantial addition or to perform a major renovation and paid the sales tax directly.
c. Under your state law, your contractor is considered your agent in the construction of the home or substantial addition or the performance of a major renovation. The contract must state that the contractor is authorized to act in your name and must follow your directions on construction decisions.
In this case, you will be considered to have purchased any items subject to a sales tax and to have paid the sales tax directly.
Unfortunately, none of the un-reimbursed expenses you incurred for your temporary housing are deductible on your return.