We present a new semi-analytic method to evaluate the deformation due to a screw dislocation in arbitrarily heterogeneous and/or anisotropic elastic half plane. The method employs integral transformations to reduce the governing partial differential equations to the integral Fredholm equation of the second kind. Dislocation sources, as well as spatial perturbations in the elastic properties are modeled using equivalent body forces. The solution to the Fredholm equation is obtained in the Fourier domain using a method of successive over-relaxation, and is mapped into the spatial domain using the inverse Fast Fourier Transform. We apply this method to investigate the effect of a soft damage zone around an earthquake fault on the co-seismic displacement field, and on the earthquake slip distribution inferred from inversions of geodetic data. In the presence of a kilometer-wide damage zone with a reduction of the effective shear modulus of a factor of 2, inversions that assume a laterally homogeneous model tend to underestimate the amount of slip in the middle of the seismogenic layer by as much as 20%. This bias may accentuate the inferred maxima in the seismic moment release at depth between 3-6 km suggested by previous studies of large strike-slip earthquakes.

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