There is no doubt that once you detect asbestos on the siding of your home that its removal is imperative. However, the IRS only allows a deduction for removing asbestos siding in a number of situations. For the typical nonbusiness taxpayer, you cannot claim a deduction for the actual expense, though there are other ways that you can save money in tax for the removal costs.
Asbestos Removal Business
If you operate a business that offers asbestos siding removal services for real property, the IRS allows you to deduct all of the expenses you incur as long as it satisfies the ordinary business expense rules. For any business to claim a deduction, the expense must be “ordinary and necessary.” In the context of asbestos removal, the ordinary criteria require that it be a typical expense that similar asbestos removal businesses will incur. For example, this may include the safety and protective gear for employees who come in close contact with the asbestos and the cost of equipment you need to safely remove the asbestos siding. To satisfy the necessary criteria, however, only requires that the expense be helpful to your business activities. It doesn’t require the expense to be essential.
Rental Property Removal
When you own a rental property, the IRS treats your rental activities like a business in many ways. This tax treatment allows you to claim a deduction for any repairs that you make to the rental property, which include removing siding on the property that has asbestos. Therefore, you can reduce your taxable rental income by the cost of hiring someone to remove the siding, or if you do it yourself, for the cost of all necessary materials.
For individual taxpayers who need to remove asbestos siding from their home, the IRS doesn’t provide any opportunity to deduct the cost. However, if you incorporate the removal of the siding into a home improvement project, you can increase the tax basis in your home for the entire cost. For example, removing old siding from your home and replacing it with new siding materials constitutes a permanent home improvement that will increase the value of your home or extend its useful life. This type of improvement allows you to increase the tax basis in your home, which can potentially reduce the capital gains tax you will pay on a future sale.
Financing Asbestos Removal
One way you can claim an indirect deduction for the cost of the removal is when you refinance your mortgage and use the additional funds to finance the cost of the improvement. To qualify, the home must be either your main residence or a second home you own and use for personal purposes. In addition, the interest is only deductible if the lender takes a security interest in your home. You claim the deduction as part of your mortgage interest expense on a Schedule A attachment to your tax return.