Larson, Courtney Receive Support from Connecticut CPA’s In Effort to Gain IRS Clarification on Crumbling Foundations
Washington, D.C. - Today, Congressman John B. Larson (CT-01) and Congressman Joe Courtney (CT-02) announced that the Connecticut Society of Certified Public Accountants (CTCPA) Executive Director Bonnie Stewart sent a letter to the Internal Revenue Service (IRS) in support or their effort to clarify how homeowners with crumbling foundations can receive federal tax relief through the casualty loss deduction. Specifically, Larson and Courtney wrote to the Acting IRS Commissioner David Kautter in August asking for clarification on whether a taxpayer can take and ‘carryforward’ a net operating loss should their casualty loss exceed their income. The need for clarification was brought to Larson and Courtney’s attention by local homeowners and CPAs during a seminar in May with IRS Senior Stakeholder Liaison from the Connecticut Taxpayer Advocate’s Office, Joseph S. McCarthy. The seminar was held for homeowners to learn more about the IRS Casualty Loss Deduction for crumbling foundation repairs.
“This clarification of the tax revenue procedure announced last year will have a major impact for homeowners whose repair costs exceed their annual income,” said Larson and Courtney. “We are grateful to have the support of the Connecticut Society of Certified Public Accountants and their Executive Director, Bonnie Stewart, in this critical matter for homeowners in northcentral and northeastern Connecticut. We also appreciate the continued attention of the IRS and Treasury to this problem and we will remain in close contact with them in the coming months to determine if the ability to carry over a net loss is available.”
In her letter to the IRS, Stewart wrote on behalf of the CTCPA that, “It is our understanding that Congressman Courtney and Larson are seeking technical clarification on how or whether a taxpayer could take and carryforward a net operating loss if their casualty loss, as qualified under Revenue Procedure 2017-60 and 2018-14, should exceed their income. We support the efforts of the Congressman to obtain positive clarification that such carryforwards can be applied to the losses of homeowners affected by the crumbling concrete foundation issue whose casualty losses exceed their income during the year in which they initially claim the casualty loss.”
Last November, the IRS issued Rev. Proc. 2017-60 to enact a “safe harbor” for the treatment of crumbling foundation-related repair costs as a “casualty loss” deduction from a taxpayer's taxable income under Section 165 of the Internal Revenue Code.
The Republican tax-overhaul signed into law in December, temporarily limits the applicability of Section 165. Under the law, beginning in tax year 2018 only taxpayers who suffer damage related to a presidentially-declared Stafford Act disaster may deduct their property-casualty losses. This provision expires in 2025.
In a December 21, 2017 letter to Courtney and Larson, the IRS confirmed that homeowners who had already completed repairs to their home before the end of 2017 would be able to claim the costs on their federal tax returns for 2017, or any open prior year.
Taxpayers have three years from the date they filed their original tax return to file Form 1040X to amend their return (and claim this deduction). The updated revenue procedure extends the “safe harbor” through the period that 2017 returns can be amended, expected to be the filing season in spring of 2021.
As homeowners and tax preparers have put the deduction to use, questions have arisen regarding how to address situations where taking the casualty loss deduction would exceed a homeowner’s income, known as a “net operating loss.” Given the high cost of repairing a failing foundation, the potential net operating loss could be substantial and this clarification would determine whether a taxpayer could carry forward this loss in future tax years, which could further alleviate the financial strain of replacing a crumbling foundation.
Homeowners should consult with a qualified tax preparer to see if they qualify for this deduction.