The tax break is the first large-scale response from the federal government providing financial relief to the thousands of homeowners nationwide dealing with the contaminated drywall.

The Chinese Drywall Tax Deduction is good, but not good enough, according to U.S. Rep. Ted Deutch. Rep. Ted Deutch, member of the Contaminated Drywall Caucus in the House of Representatives, said it's good that the Internal Revenue Service will allow taxpayers with defective drywall in their homes will be able to deduct the cost of repairs.

“Help has been slow to come for the thousands of families in South Florida and throughout the country whose lives have been turned upside down by contaminated drywall in their homes. The Internal Revenue Service’s announcement that expenses related to the replacement of tainted drywall will be tax deductible is a critical step in the right direction. However, more must be done to help families whose homes have become outright uninhabitable and whose entire neighborhoods have seen property values decline as a result of tainted drywall. Replacing tainted drywall is an expensive undertaking and we need to assist homeowners whose property insurers and lenders are refusing any flexibility when it comes to making claims or mortgage payments.

“I applaud the IRS for stepping up to the plate with this commonsense assistance for homeowners, but this is not a comprehensive solution to the problem. We must continue to press the Administration, specifically FEMA and the Department of Housing and Urban Development, to recognize this problem as the emergency it is and get these families the help they need and deserve.”

Government testing has found that some Chinese drywall emits hydrogen sulfide, causing corrosion in air conditioner parts and plumbing. Some homeowners have complained of health problems, usually often breathing difficulties, because of the drywall gases; but the federal government hasn’t been able to link the drywall to their illnesses, but has recommended that homeowners replace the drywall and wiring, a process that can cost more than $100,000.

Complaints about the drywall first surfaced a few years ago, many of them concentrated in South Florida and Louisiana. Hundreds of lawsuits have been filed to recover damages.

“This tax relief is just another important step to help drywall victims piece their lives back together.” said Senator Bill Nelson, a Democrat from Florida who, along with several other members of Congress, supported the tax break. “This is welcome and long overdue news.”

Under the new rule, taxpayers can deduct so-called casualty losses — generally the cost of repairs from a sudden or unusual event — in the year in which the loss occurs, as long as the losses are not compensated by insurance or other parties. But there are several other restrictions: taxpayers must itemize their federal returns to claim the deduction. And deductions are allowed only on amounts that exceed $500, and on amounts that exceed 10 percent of the taxpayer’s adjusted gross income for the year.

Taxpayers who do not have pending claims for reimbursement (and who do not intend to file for any) can claim the full tax break, while people with pending claims for reimbursement may claim only a loss for 75 percent of the unreimbursed amount paid for damages. Taxpayers can file for an additional deduction or report the income received from a claim in subsequent years depending on how much they actually receive.

So far, homeowners with corrosive drywall, which was manufactured mostly in China, have not received much financial help. Most insurance companies have yet to pay out claims, and only a handful of home builders have replaced the bad drywall.

The government has encouraged lenders to suspend mortgage payments and reduce property taxes on damaged homes, though those efforts have not addressed the core problem of replacing the drywall.

In the end, the tax break will help only those homeowners who can afford the costly repairs.