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Mold, Taxes and Death – What is the Commonality?
The difference between a capital expense and business expense is in the words “repair” versus “renovation”. A “repair” saves the value of your home and is a necessary and ordinary expense, while a “renovation” adds value. Mold removal is considered a repair since it does not add value to a home.
With tax season approaching fast it is timely to ask: What does mold, taxes and death have in common? The short answer is all three can put you six feet under. As we all have known death and taxes are life and inevitable, we now know that mold is also inevitable simply for the fact that it is ubiquitous in nature and all around us and in some extreme cases can kill us depending upon the exposure. The good news is if you haven’t died from mold exposure you may be able to write off part of your experience on your taxes.
For those of you who have experienced a microbial contamination whether in your office or home the experience can be harrowing. Just ask Melinda Ballard about her nightmarish toxic Texas home. If you have been struggling with the cost of mold remediation and are still here to tell of their tales there the good news is that mold removal and repair can be a tax deductible business expense for landlords and homeowners.
Mold has always been with us, and no property is void of mold. However, over the past few years a certain species of mold have been identified as contributors to illnesses, respiratory distress and in some cases even death. Allergic individuals may experience symptoms related to mold. Dr. Rajiv Sahay, FAIS, CIAQP Director of EDLab an AIHA accredited laboratory in Clearwater, FL stated “If you can see mold, or if there is an earthy or musty odor, you can assume you have a mold problem.”
It’s been true since about 2006 when the IRS issued a private casualty loss letter ruling that mold removal costs by a building owner, including both homeowners and landlords, was not a capital expenses, but a business expense that is ordinary and necessary. A casualty is an event that is identifiable, damaging to property, and sudden, unexpected, and unusual in nature. Mold removal does not alter the building or adapt it to a new or different use so it can be considered a current expense instead of a capital expense which gets added to the tax basis of an asset and only provides a tax benefit by depreciation.
It’s been true since about 2006 when the IRS issued a private casualty loss letter ruling that mold removal costs by a building owner, including both homeowners and landlords, was not a capital expenses, but a business expense that is ordinary and necessary. . Mold removal does not alter the building or adapt it to a new or different use so it can be considered a current expense instead of a capital expense which gets added to the tax basis of an asset and only provides a tax benefit by depreciation.
The difference between a capital expense and business expense is in the words “repair” versus “renovation”. A “repair” saves the value of your home and is a necessary and ordinary expense, while a “renovation” adds value. Mold removal is considered a repair since it does not add value to a home.
This makes sense for business owners and landlords where the presence of mold affects the cash flow of their business. But it also includes homeowners because a home is considered an investment, and mold removal is necessary to protect that investment.
The new ruling includes deductibles for the remediation costs incurred, the repair costs, and the replacement materials costs. This means, if you are careful about it you can have the tax benefit work towards your advantage. For example, if you want new dry wall hung in your home to improve it, then this is not tax deductible because it adds value to your home. But if you must have new drywall hung because your old drywall is infested with mold, then this is tax deductible.
Though don’t get carried away, you must itemize each deduction and the IRS will look closely at them. It’s best to seek the advice of your tax accountant or CPA first before going ahead with any assumed deductible business expenses. As you can see, mold, taxes and death are inevitable in life.
Here is what the IRS specifically states about mold damage:
The formation of mold may qualify as a separate casualty. A casualty is an event that is identifiable, damaging to property, and sudden, unexpected, and unusual in nature. An event is sudden if it is swift and precipitous, and not gradual or due to progressive deterioration of property through a steadily operating cause. An event is unexpected if it is unanticipated and it occurs without the intent of the one who suffers the loss. An event is unusual if it is extraordinary and nonrecurring, one that does not commonly occur during the activity in which the taxpayer was engaged when the destruction or damage occurred and one that does not commonly occur in the ordinary course of day-to-day living of the taxpayer. If, under a particular set of facts, the formation of mold is a sudden, unexpected, unusual and identifiable event that caused damage to the individual's property, then it would qualify as a casualty and the individual may be entitled to deduct the loss for the resulting property damage as a casualty loss under section 165(c)(3) if the individual satisfies the other requirements for the deduction.
For more information on developing a proactive Mold/IAQ testing program for your buildings call the Building Scientists at Pure Air Control Services or go to: Environmental Diagnostics laboratory (EDlab) Edlab.org, a CDC ELITE laboratory (contact Dr. Rajiv Sahay 1-800-422-7873 ext 303). DIY Legionella kits are available at: www.INDOORAIRTEST.com and other fine retailers.
About Pure Air Control Services:
Pure Air Control Services, Inc. was founded in 1984 as a small mechanical contracting firm today sets the industry standard for indoor environmental quality diagnosis and remediation.
Pure Air Control Services is a national provider of the following IAQ services: Building Sciences Evaluation; Building Health Check, Environmental Diagnostics Laboratory (EDLab) an AIHA accredited micro laboratory (USP 797 Lab analysis); DIY IAQ Green Check test kits, Environmental Project Management; HVAC System Cleaning, PURE-Steam Coil Cleaning and Mold Remediation Services among other indoor environmental services.
The company’s expanding client roster includes the General Services Administration (GSA); Federal Aviation Administration (FAA), Allstate Insurance; Carrier Air Conditioning; Naval Air Warfare Center, Orlando; and Naval Air Station - King's Bay, Georgia, and many other Fortune 500 companies, school boards, and city, state, and county governments, making Pure Air the reliable industry leader. For more information contact Alan Wozniak or Dr. Rajiv Sahay at 1-800-422-7873
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