SECTION 3. SCOPE

.01 In general . An individual who suffered a casualty or theft loss for the individual’s personal-use residential real property or personal belongings damaged, destroyed, or stolen as result of the 2005 Gulf hurricanes may use the safe harbor methods provided in this revenue procedure in determining the amount of the individual’s casualty and theft loss deductions under § 165.

.02 Definition of personal-use residen- tial real property and personal residence . For purposes of this revenue procedure, personal-use residential real property is real property, including improvements

July 10, 2006 63 2006–28 I.R.B.

damaged or destroyed as a result of one or more of the 2005 Gulf hurricanes. The three personal-use residential real property safe harbor methods are the Insurance Safe Harbor Method described in section 4.02 of this revenue procedure, the Contractor Safe Harbor Method described in section 4.03 of this revenue procedure, and the Cost Indexes Safe Harbor Method described in section 4.04 of this revenue procedure.

.05 Use of Cost Indexes Safe Harbor Method . An individual may use the Cost Indexes Safe Harbor Method if the individual’s personal-use residential real property has suffered, in the circumstances described below, (1) a total loss of a personal residence, (2) a near total loss of a personal residence, (3) interior flooding over 1 foot of a personal residence, (4) structural damage from wind, rain, or debris to a personal residence, (5) roof covering damage from wind, rain, or debris to a personal residence, (6) damage to a detached structure, or (7) damage to wood decking:

(1) Total loss . A total loss of a personal residence occurs if, as a result of a storm surge or catastrophic prolonged flooding due to breaching or overtopping of a protective levee system during one of the 2005 Gulf hurricanes, any one of the following occurred:

(a) The personal residence either collapsed or is structurally unsound (for example, the structural connections in the personal residence, such as nails and anchor bolts, have corroded as a result of prolonged exposure to salt water (including brackish water) over an extended period of time to the extent that they compromise the structural integrity of the personal residence);

(b) The state or local government or any political subdivision thereof has ordered that the personal residence be demolished or relocated;

(c) The individual has sold the personal residence to an unrelated party for a price that reflects the fair market value solely of the land on which the personal residence is situated; or

(d) The personal residence sustained damage that satisfies the definition of near total loss, as described in section 3.05(2) of this revenue procedure, and the individual has demolished the personal residence.

(2) Near total loss . The near total loss of a personal residence occurs if, as a result of a storm surge or catastrophic prolonged flooding due to breaching or overtopping of a protective levee system during one or more of the 2005 Gulf hurricanes, the personal residence sustained severe damage necessitating the removal and disposal of substantially all interior wall frame coverings (including drywall and other wall frame coverings), floorings, electrical lines, ducts, plumbing, and other fixtures. For a personal residence sustaining near total loss, only the wood frame, rafters, and outside façade of the personal residence remain structurally sound and reusable.

(3) Interior flooding over 1 foot . Interior flooding over 1 foot occurs if a personal residence was flooded with salt water (including brackish water) to a height of more than 1 foot as a result of a storm surge or catastrophic prolonged flooding due to breaching or overtopping of a protective levee system during one or more of the 2005 Gulf hurricanes, but did not sustain damage that falls within the definition of total loss or near total loss, as described in section 3.05(1) and (2) of this revenue procedure.

(4) Structural damage from wind, rain, or debris . Structural damage from wind, rain, or debris occurs if a personal residence sustained major structural damage to the roof and/or outside wall(s) as a result of wind or windblown debris from one or more of the 2005 Gulf hurricanes that exposed part or all of the interior of the personal residence to rain or debris, requiring substantial renovation of the damaged areas. Substantial renovation requires the removal and replacement of drywall or other wall frame coverings, replacement of trim, and repair and painting of the damaged interior areas of the personal residence.

(5) Roof covering damage from wind, rain, or debris . Roof covering damage from wind, rain, or debris occurs if a personal residence sustains damage from wind, rain, or windblown debris to roofing felt, shingles, flashings, fascia, or soffit as a result of one or more of the 2005 Gulf hurricanes.

(6) Detached structures . A detached structure consists of a detached structure on personal-use residential real property where the detached structure sustained

damage from one or more of the 2005 Gulf hurricanes to the extent that it requires either complete or major rebuilding. A detached structure includes a shed, shop, or detached garage that is not used in connection with a trade or business and that is not equipped with heating or air conditioning. Furthermore, a detached structure is of enclosed wood-frame construction, with some electrical capabilities and little or no interior finishing.

(7) Wood decking . Wood decking consists of pressure treated wood decking attached to a personal residence where the decking was damaged or destroyed by one of the 2005 Gulf hurricanes.

.06 Taking into account no-cost repairs . An individual using the Cost Indexes Safe Harbor Method described in section 4.04 of this revenue procedure must take into account the value of any no-cost repairs as described in section 6 of this revenue procedure.

.07 Use of Personal Belongings Safe Harbor Method . An individual may use the Personal Belongings Safe Harbor Method described in section 7.01 of this revenue procedure to determine the pre-hurricane fair market value of the individual’s personal belongings located in the Hurricane Katrina disaster area, Hurricane Rita disaster area, or Hurricane Wilma disaster area (see section 2.03 of this revenue procedure) that were damaged, destroyed, or stolen as a result of one of the 2005 Gulf hurricanes.

.08 Limited use of safe harbor methods . The safe harbor methods described in sections 4 and 7 are available only in the circumstances described in this revenue procedure.