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Hi all! I live in NJ and recently my well went bad and I had to have another one dug. Total cost was about $5,150 out of pocket. I have an insurance claim in, but don't don't know how that will pan out.

Is this expense tax deductible? I was given, along with the bill, a notice to sign Form ST-8, Certificate of Exempt Capital Improvement. I am not sure what this means.

Thank you so much for your help!

Mike in NJ

Ira is the usual NJ expert, but I'll tell you what I can. The easy part first.

The Form ST-8 is a NJ state sales tax form, a certification that the new well was an improvement to real estate, and therefore the labor and/or other service charges (but apparently not materials?) were exempt from sales tax. So I guess you weren't charged sales tax for the job. That should be straight-forward.

As for income tax deductible?? You say the well "went bad".
Was this due to drought? Groundwater contamination?
There isn't much to deduct, unless it qualifies as a casualty loss, which usually has to be a sudden event. A drought never used to qualify, until back in the Reagan administration days, I think. At that time, a number of places were declared as disaster areas due to drought. And a federally-declared disaster will get casualty loss treatment. So that may still happen for a lot of places this year.

But a casualty loss is of limited value. It's only deductible to the out-of-pocket after insurance, and only to the extent that it exceeds 10% of your adjusted gross income. Some years that floor was removed, for hurricanes and floods, I recall, but I think it's back now.

If the damamge is due to some other cause, please tell us more.
Best case scenario is that you recover on the insurance claim.

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