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Sloshing through swimming pool tax deduction rules

Reviewed and updated Tuesday, Aug. 30, 2022

It's summer. Not to overstate the obvious, that means it's hot, hot, hot

It also means that pool contractors are making out like bandits, at least here in my Austin neighborhood. This time every year, the backhoes and dump trucks and cement mixers form a regular parade.

And I get the same question from neighbors: Can I deduct my new swimming pool costs?

Having swimming pool fun courtesy Time Pierce via Flickr
Photo courtesy Tim Pierce via Flickr

For most, the answer is no. When your backyard pool is mainly used by you and your family for the type of cooling off fun pictured above, you won't be able to deduct its construction costs on your taxes.

But in some cases, a pool may count as a medical deduction.

Again, the key word here is "may." Let's look at how that can be changed to "can."

Regular, then medical rules: First, the general tax deduction rules apply when it comes to writing off medical (and dental) costs.

These expenses are deductible when you itemize on Schedule A as long as they are for your care, or that of your spouse or your dependents.

Since the enactment of the Tax Cuts and Jobs Act of 2017 essentially doubled standard deduction amounts, even more taxpayers are claiming that, rather than itemizing.

In addition, the amount that you can deduct must be the portion that's more than 10 percent of your adjusted gross income (AGI), 7.5 percent of your AGI if you're age 65 or older.

UPDATE, Dec. 27, 2020: The $1.4 trillion spending and COVID-19 relief bill that was signed into law today includes a welcome tax break on the deductibility of out-of-pocket medical expenses. The threshold for claiming eligible health care costs now is set back at 7.5 percent permanently.

For most, that's a substantial, and usually insurmountable, amount of Internal Revenue Service approved health-related costs.

Doctor prescribed: Now to the medical write-off specifics for a swimming pool, or other special residential change.

Not to get bogged down in jargon, but IRS Publication 502 describes medical expenses as the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body.

The key factor that determines the medical deductibility of a pool, spa or hot tub is that it provides a qualified medical treatment that is prescribed by a physician. This means your doctor believes that the pool workouts will alleviate or prevent your ailment.

Primary use is medical: Also, the pool must be used primarily for the prescribed medical treatment. The IRS isn't picking on water therapy here. No medical expenses count for tax deduction purposes if the treatments are simply good for your general health.

So even though the exercise you get from doing laps in your pool will improve your overall well-being, that's not good enough for the IRS to OK your deduction.

The IRS also is likely to look askance at your pool deduction if there's an available pool close to your home that you can use for the same purpose.

If, however, your doctor prescribed water exercise to treat your osteoporosis and there's no reasonably-priced nearby swim facility, the cost of installing a pool, hot tub or swim spa at your residence may be deductible, at least in part, as a medical expense.

Substantiation essential: It helps if you can show that the water feature is not for recreation; for example, it has special features designed to alleviate your specific condition.

And as with all tax deductions, be prepared to show the IRS not only the special pool features, but all of the reasons why your claim is legitimate.

In addition to the doctor's written prescription for the pool, get an independent appraisal of your property both before and after the improvement is made.

Figuring your deduction: Once you do have a deductible pool, you'll have to do the math to come up with your specific deduction. This is beyond the 10 percent (or 7.5 percent) threshold calculations.

The value of the aquatic medical expense is limited to the difference between the cost of building the pool and the increase it produces in the value of your property. Remember those before/after appraisals you had done?

The remaining construction costs, however, are not lost. They can be added to your property's basis for use in determining any possible capital gains taxes or excluded profits when you sell your house.

Ongoing expenses: Finally, keep track of the operating and maintenance costs of your pool or any other qualified medical improvement to your residence. As long as the pool is uses to treat the ongoing medical condition, you can deduct these expenses, too.

In fact, even if your pre- and post-pool property value calculations and the AGI percentage limit prevent you deduct the construction costs, you still can write off the operational and upkeep costs as long as the main medical reason for the pool etc. remains.

Yep, it's a lot of work to deduct a pool or other property alteration. And yes, most folks won't be able to write off their own personal concrete swimming hole.

But I'm not feeling too sorry for you. You're healthy enough that you don't need the special medical treatments. And you have a pool to enjoy on sweltering days and as a diversion from taxes.

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