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Diving into swimming pool tax deductions

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Swimming pool steps photo via Unsplash+ in collaboration with Jordan González

We have new neighbors, and it's obvious why they bought the house. Family members and their friends have been in the swimming pool every day since they moved in.

Good for them. I hope they enjoy the pool.

I also hope they budgeted for the upkeep. Judging from the assortment of pool companies that also have been over there almost every day, the maintenance to keep it swimmable could be significant.

The perpetual pool question: The added costs of being able to step out your back door and take a cool dip often prompts a tax question: Can I deduct my swimming pool costs?

For most, the answer is no. When your backyard pool is mainly used by you and your family and your teenage daughter's BFFs, you won't be able to deduct its construction costs or maintenance 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 costs.

These expenses are deductible when you itemize on Schedule A.

They also must be necessary for your medical care, or that of your spouse or your dependents.

In addition, the amount that you can deduct must be the portion that's more than 7.5 percent of your adjusted gross income (AGI).

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.

But if you're putting in a new pool at your home, those costs might be enough to meet the percentage requirement and total enough overall Schedule A claims to make itemizing worthwhile for that tax year.

In subsequent tax years, however, you'll likely find that your pool upkeep costs aren't enough to justify itemizing, even if you're as committed to pool maintenance as my new neighbors.

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

Not to get bogged down in jargon, but Internal Revenue Service 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.

And if your friends and family are splashing around in the pool when you're not using it for your medical treatments, that will undercut your tax claim.

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.

Again, may be.

And don't be surprised if the IRS has some questions about your claim.

Substantiation essential: In answering those tax agency queries, it helps if you can show that the water feature is not for recreation. You might cite, for example, that the pool has special features designed to alleviate your specific condition.

These range from special equipment such as a wheelchair ramp into the pool or extra wide steps into the shallow end.

And as with all tax deductions, be prepared to show the IRS not only the special pool-specific health accoutrements, 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.

Usually, improvements to your home don't come into tax play until you sell. You use the increase in your property's value due to the upgrades to help lower your possibly taxable profit.

However, special structural medical expenses are an exception. You can deduct costs at the time of the approved medical devices in the year they are installed.

To calculate capital expenses when installing a pool, you’ll have to do some math. First, figure out how much the value of your home increased when you installed a pool. Compare this number to the cost of installing the pool. If installation costs are more than the increased value of your home, these costs are considered medical expenses and are tax deductible. Remember those before/after appraisals you had done?

But the calculating doesn't stop there. This is where the previously mentioned 7.5 percent of your AGI threshold comes into play.

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 used 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 remains, and they and your other medical expenses exceed the AGI threshold. These include such things as These expenses may include cleaning equipment, electricity to operate lights around the pool, and the cost to heat the pool.

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 special medical treatments. And you have a pool to enjoy on sweltering days and as a diversion from taxes.

You also might find these items of interest:

 

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