Tax Research

Dear Mr. TP,

Thank you for the opportunity to advise you regarding termite infestation matter. According to my research, there are several issues involve. First issue is whether damage repaired for termite infestation can be deducted as casualty loss. Second issue is what deductions, if any, are allowed to deduct from your taxable income. I will explain these three factors within this letter.

A casualty is the damage, destruction, or loss of property resulting from an identifiable event such as: a sudden event is one that is swift, not gradual or progressive, an unexpected event is one that is ordinarily unanticipated and unintended, an unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Termite damage is consider as progressive deterioration which is damage results from a steadily operating cause or a normal process, rather than from a sudden event. However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss.1 A deduction is allowed for losses incurred during the settlement of the estate arising from fires, storms, shipwrecks, or other casualties, or from theft, if the losses are not compensated for by insurance or otherwise.

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In George L. Buist et ux. v. United States, the Eastern District of South Carolina held that damages to a house caused by an infestation of termites within nine months period constituted a deductible casualty loss under section 165 of the Internal Revenue Code of 1954.2 Since your house is newly constructed and the termite infestation occurred within three months after constructing finished; therefore, your should be eligible for the casualty loss.

1 IRS Publication 547: Casualties, Disasters, and Thefts [2013],Internal Revenue Service

2 Revenue Rulings,Rev. Rul. 59-277 Based on Technical Information Release 142, dated March 13,...