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.
In addition, the amount that you can deduct must be the portion that's more than 7.5 percent of your adjusted gross income.
Now to the medical write-off specifics for a swimming pool, or other special residential change.
Doctor prescribed: 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 going to ask 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 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 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 etc. remains.
Per IRS Publication 502,
Amounts you pay for operation and upkeep of a capital asset qualify as medical expenses as long as the main reason for them is medical care. This rule applies even if none or only part of the original cost of the capital asset qualified as a medical care expense.
Therefore, the maintenance and supplies are deductible as qualified medical expenses. Assuming the charges for electricity are for the entire home and not separately billed for the pool, you will have to determine the allocation of expenses related to the pool versus the remainder of the property.
To enter these expenses, follow these steps:
- From the Federal menu, click on Deductions & Credits
- Expand the menu for Medical
- Click Start/Revisit next to Medical Expenses
- Enter the information on the screens that follow
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