Update on Federal Tax Bill and Crumbling Foundations

All,

As you may know, yesterday the House and Senate passed the final conference report on HR 1, the Tax Cuts and Jobs Act. We expect the measure to be signed into law as soon as this week.

By way of review, on November 16, 2017 the House passed a version of the bill which entirely and permanently eliminated the Sec. 165 property casualty loss deduction, except for losses incurred as a result of hurricanes Harvey, Irma, or Maria.  The Senate version, which passed on December 2, 2017 did not eliminate the deduction, but instead temporarily limited the scope of the deduction, through 2025, to those losses connected to a federal disaster declaration under the Stafford Act.

The final conference report adopted the Senate position. To this end, the measure limits the scope of property casualty loss deductions to only those losses incurred as part of a federally declared natural disaster, after January 1, 2018. However, this limitation sunsets in 2025 after which the deduction would revert to its current form- absent further extension or change by Congress. 

Click here for the legislative text of the final language on casualty loss deduction (Sec. 11044), and here for the explanatory statement submitted with the bill.

Our office has received many inquiries about how this new law will impact the IRS tax guidance issued last month allowing homeowners impacted by crumbling foundations to deduct repair costs through the casualty loss deduction. Congressman Courtney’s staff, along with staff from Congressman John Larson (CT-1) and Congressman Richard Neal (MA-1) (who serves as the ranking member of the House Ways and Means Committee and represents an area of Massachusetts now seeing crumbling foundations cases), have been in regular contact with officials from Treasury and IRS to seek guidance for homeowners on what the new law could mean for their ability to take the deduction in 2018 and beyond.

Generally speaking, the changes made by the new tax law will apply prospectively starting January 1, 2018. As such, IRS has shared with our office that they believe homeowners who can satisfy the existence of a loss as defined by the Department’s “Safe Harbor” Tax Guidance issued November 21, 2017 and paid the cost of repairing their homes in 2017 will be able to file for the deduction in their 2017 return. In addition, because the IRS allows taxpayers to file amended returns for the prior three tax years, those who satisfied the requirements of the guidance (which specifically noted the ability to file amended returns) in prior years should also be able to claim the deduction on eligible prior-year returns.

Given the importance of providing clear and precise information to homeowners on this matter, in consultation with Treasury and IRS officials Congressmen Courtney, Larson and Neal have asked for written confirmation that homeowners can claim the deduction in 2017 and eligible prior year returns, as well as a written analysis of how the new tax law may impact the ability of Connecticut homeowners to claim a crumbling foundations related casualty loss deduction in 2018 and beyond. Click here to read that formal request.

At this time, we have been advised that the IRS expects to answer our inquiry in January 2018.

We hope this update is helpful and we will provide further information as it becomes available. As always, please do not hesitate to contact our office if you have any questions, comments or insight that may be useful as we seek to preserve the property casualty loss deduction for homeowners facing crumbling foundations.

Please note that any affected homeowner should consult with a qualified tax preparer regarding this issue. This memo is a policy update and does not constitute individual tax assistance.

Ayanti E. Grant
District Director
Representative Joe Courtney (CT-2)
55 Main Street, Suite 250| Norwich, CT 06360
(860) 886-0139 p | (860) 886-2974 f