In some situations, you can deduct a swimming pool on your tax return. If you qualify for this deduction, you can deduct all installation costs the year you install the pool. Once the pool is installed, every year you can also deduct operating, cleaning, and other maintenance costs from your taxes.
The Catch
A pool is considered a medical home improvement expense for certain medical conditions. It’s considered the same as installing ramps or handle bars to make a house more accessible.
To be entirely tax deductible, the pool has to be entirely used for medical purposes. This is different than a home office or using a personal vehicle for business purposes. With those deduction, you can claim what percentage you use the space for work-related purposes. This isn’t allowed for pools.
If the pool is used recreationally, including people who don’t live with you, you can’t deduct the installation costs because the pool wouldn’t be solely for medical purposes.
The thing to keep in mind is that you’ll have to itemize your deductions to take advantage of the medical expense deduction. While this isn’t an insurmountable burden, it’s important to remember that you won’t be getting the standard deduction if you want to deduct your swimming pool from your taxes.
What Kinds of Medical Situations Warrant the Installation of a Pool?
A doctor might advise someone to install a home pool for a number of different medical situations. These include osteoporosis, multiple sclerosis, arthritis, and chronic pain. It’s also common to use a pool for physical therapy, especially when someone can’t put their full weight on a leg.
Does Your Medical Condition Entitle You to a Tax Break for Your Pool?
Doctors and physical therapists may suggest doing therapy in a pool. You can talk to your licensed medical provider to see if they recommend installing one in your home or backyard. You will need documentation from your provider as proof the pool is necessary for the medical home improvement exemption.
If you need a pool for this type of therapy, you may not have many accessible options in your area. Many hydrotherapy pools closed during the coronavirus pandemic and haven’t reopened yet. This might help you decide to install your own pool.
Although swimming is an excellent option for weight loss, this may not be enough of a medical reason for the IRS. In at least one case the IRS didn’t allow a taxpayer to deduct installation costs for his pool, but the taxpayer didn’t have medical documentation other than a statement that his doctor advised him to lose weight.
Audit Risks
If you want to apply the costs for installing a swimming pool towards a medical home improvement deduction, you may increase the risk of an audit. To claim this exemption, you’ll need to itemize your deductions, which can be an audit trigger when deductions are high compared to your income.
Increasing your chances of success in an IRS audit
In order to increase your chances of success in an audit, you should make sure the pool is specifically designed for your medical condition. Often, people need special equipment in a pool to meet their medical needs, such as a wheelchair ramp into the pool or extra wide steps into a shallow pool. This equipment may increase the installation costs, but may not increase the value of the home.
Showing that the equipment doesn’t have benefits other than treatment can be helpful when faced with an audit. You can work with your doctor to make sure your medical documentation clearly shows the relationship between the pool and your medical needs.
If you’re concerned about triggering an audit, Tax Shark’s audit defense insurance can help give you peace of mind.
Estimated Tax Savings
Medical pools may increase the value of your house. Normally, work done to your home that increases the value is only deductible when you sell the house. Medical expenses are an exception to this rule. The IRS lets people deduct costs at the time of installation of home medical devices.
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.
In 2022, you can deduct medical expenses, including swimming pool installation costs, from your taxes that exceed 7.5% of your personal income tax return.
Remember that the expenses associated with the pool are ongoing: you’ll also be able to deduct operating and maintenance expenses in the year you install the pool, as well as in subsequent years. These expenses may include cleaning equipment, electricity to operate lights around the pool, and the cost to heat the pool.
An additional tax benefit to installing a medical pool is that you don’t have to pay back the deductions if you get better, or no longer use it for medical purposes in the future.
An example of the tax savings calculation
Let’s say Bob spends $20,000 to install his pool. Before installing the pool, his house was valued at $250,000. After installing the pool, the house was valued at $260,000, so the value of his house increased by $10,000. Installation costs were $10,000 more than the increased value of Bob’s home. This $10,000 becomes a medical expense.
Let’s say Bob’s income is $100,000, letting him deduct medical expenses that cost more than $7,500 (7.5% of his income). Bob’s pool involved $10,000 of medical expenses, so he’ll be able to deduct $2,500 from his taxes from the installation of the pool. He can also deduct additional expenses related to the pool and any other medical expenses that come up that year.
Other options for increasing tax savings
The medical expense deduction isn’t the only place to go for tax relief when you want to install a pool.
Business owners can set up a Section 105 reimbursement plan. This plan lets business owners deduct 100% of health insurance and medical expenses for them and their families. In our example above, Bob would be able to deduct the full $10,000 of medical expenses reimbursed through his Section 105 plan.
Finally, people with a flexible spending account (FSA) or a health savings account (HSA) can apply funds from these accounts towards their pool expenses. These aren’t unlimited plans, so you may not get full reimbursement for a large purchase like a pool. These plans can offer their owners some benefits for pool installation.
FAQs
Questions about swimming pool deductions? We have the answers.
If you need a pool for medical reasons, such as for physical therapy, you can write off installation charges from your taxes.
If your swimming pool is used solely for medical-related reasons, you can deduct any expenses related to pool maintenance or operation, including cleaning supplies and heating costs.
Although audits are relatively rare, deducting a swimming pool could raise a red flag. Remember that swimming pools are only deductible if they’re only used for medical purposes. If they’re used at all recreationally, they aren’t tax deductible.
Yes, a pool is considered a capital improvement because it adds value to your home. When you sell the house, your capital improvements will be added to the tax basis in the house. Your tax basis is subtracted from the sale price to determine the profit, which is the amount you’ll pay taxes on.
