People have gotten away with deducting all sorts of crazy expenses on their tax returns—like the depreciation on ostriches and the cost of clarinet lessons. And yes, people have also gotten away with deducting a swimming pool as a medical expense. If you plan to try it, it’s a good idea to speak with a certified public accountant (CPA) first to make sure you aren’t inviting an audit. You must be able to prove that your new swimming pool really is an authentic medical expense.
What to Know About the Immediate Deduction of a Capital Expenditure
Capital expenditure refers to the money spent to acquire and/or maintain fixed assets. Ordinarily, this would apply to swimming pools because they are intended for long-term use (compared to office supplies, for example). The IRS states that you cannot deduct capital expenditures immediately. Instead, you must depreciate the cost over the life of the asset. However, there is an exception for medical-related expenditures. As long as the expenditure is made specifically and entirely for medical purposes, you can deduct the cost immediately. Even better, there is no recapture tax that applies to this exception. In other words, if you bought a pool for medical reasons, but your condition improves and you continue to use the pool, you won’t need to pay a recapture tax.
How Much You Can Deduct
Although the swimming pool is for medical purposes, building it will improve the value of your home. You will need to figure out this dollar amount before taking the deduction. Here’s an example:
- You build a swimming pool for a total construction cost of $25,000.
- The swimming pool increases the value of your home by $10,000.
- The difference is $15,000.
- You can deduct $15,000 as a medical expense.
Most people claiming a swimming pool as a medical expense will only be able to deduct the difference between the cost and the improvement in home value. However, there may be a few situations in which a person could deduct 100% of the cost.
When to Deduct 100%
The IRS will allow you to deduct 100% of medical expenses that have little to no value outside of medical treatments. As an example, let’s say Jane Taxpayer was in a car accident that left her wheelchair-bound. She has to pay a contractor to lower her kitchen cabinets so she can access them. There really isn’t a conceivable reason to do this except for medical purposes, and so the IRS would likely allow a 100% deduction. As you can probably imagine, it’s much harder to claim this exception for a swimming pool that can be enjoyed by other people in the household for non-medical purposes. You might be able to do it if the pool is highly specialized or customized for medical reasons, but you should definitely speak with a CPA first.
How to Deduct Your Operating Costs
The costs to operate and maintain a swimming pool can be quite high, especially if you’re paying to heat the pool. You can deduct these operating and maintenance costs for as long as you use the pool for medical reasons, but remember to retain all of your receipts. Some examples of potentially deductible costs include the following:
- Pool chemicals and test strips
- Pool equipment
- Electricity (the portion used for the pool only)
- Pool cover
- Winterization costs
How to Prove the Pool Is a Necessary Medical Expense
Before claiming a pool on your taxes, you should make sure the IRS will approve it or that it will hold up to an audit. You must be able to prove that the swimming pool is directly related to your medical care and that the pool is primarily used for medical care. The court has previously ruled in favor of the deduction of a swimming pool that met the following criteria:
- It was purchased after a diagnosis.
- The doctor recommended it.
- The patient investigated less expensive alternatives before purchasing the pool.
- The patient used the pool regularly (twice per day, every day).
- The patient’s family members only used the pool occasionally.
Your swimming pool deduction may be more likely to hold water if it has special features for medical purposes, such as a ramp for wheelchair entry.
The Royce CPA Firm can help you maximize your deductions and minimize your tax liability. We offer tailored CPA services for individuals, businesses, and nonprofits in the greater Tucson area. Give us a call today or schedule your next appointment online.