Here is a helpful bit of advice for those struggling with the cost of mold remediation. Mold and taxes are both inevitabilities in life, but did you know that mold removal and repair is a tax deductible business expense for landlords and homeowners?
It’s been true since about 2006 when the IRS issued a private 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.
This is a surprising ruling since asbestos removal was considered for many years as a capital expense because it “results in an improvement in the property by reducing or eliminating human health risks.” Surely, the same thing could be said about mold.
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.
But 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 first before going ahead with any assumed deductible business expenses.