Question: When Are Pools, Spas and Other Home Improvements Tax Deductible?
The expense of some major home improvements (such as: pools, spas, elevators, lifts, ramps, etc.) "may" be tax deductible as medical expenses. How do you determine your medical expenses, if any, for the amounts you pay for these types of improvements or special equipment installed in your home?
Answer: According to IRS Publication 502, medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These include the costs of equipment, supplies, and diagnostic devices needed for these purposes. However, medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They do not include expenses that are merely beneficial to general health.
Deducting Capital Improvement Expenses
You can include in medical expenses amounts you pay for special equipment installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent. The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of your property. Only the difference is a medical expense. If the value of your property is not increased by the improvement, the entire cost is included as a medical expense. Actual increase in value to the home is best determined by an appraisal.
Deducting the Cost Of Swimming Pools and Spas
If swimming and other water exercise is prescribed as treatment or physical therapy, the cost of constructing a home swimming pool, hot tub or swim spa may be partly deductible as a medical expense. However, the IRS is likely to question the deductions because of the possibility that the pool may be used for recreation. If you can show that the pool is specially equipped to alleviate your condition and is not generally suited for recreation, the IRS will likely allow the deduction. Example: The IRS allowed a deduction for a pool constructed by an osteoarthritis patient. His physician prescribed swimming several times a day as treatment. He built an indoor lap pool with specially designed stairs and a hydrotherapy device. Given these features, the IRS concluded that the pool was specially designed to provide medical treatment.
Improvements That Don't Add Value To A Home
Certain improvements made to accommodate a home to your disabled condition, or that of your spouse or your dependents who live with you, do not usually increase the value of the home and the cost can be included in full as medical expenses. These improvements include, but are not limited to, the following items:
- Constructing entrance or exit ramps for your home.
- Widening doorways at entrances or exits to your home.
- Widening or otherwise modifying hallways and interior doorways.
- Installing railings, support bars, or other modifications to bathrooms.
- Lowering or modifying kitchen cabinets and equipment.
- Moving or modifying electrical outlets and fixtures.
- Installing porch lifts and other forms of lifts (but elevators generally add value to the house).
- Modifying fire alarms, smoke detectors, and other warning systems.
- Modifying stairways.
- Adding handrails or grab bars anywhere (whether or not in bathrooms).
- Modifying hardware on doors.
- Modifying areas in front of entrance and exit doorways.
- Grading the ground to provide access to the residence.
- Only reasonable costs to accommodate a home to a disabled condition are considered medical care. Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses.
Operating and maintenance costs for capital assets such as a pool, spa, heater, air filter etc. in terms of the water, electricity, cleaning, repairs, maintenance and chemicals required are hidden costs which are deductible. All the costs are deductible even if none or only a portion of the capital asset was deductible.
Essential Recordkeeping and DocumentationWhen deducting these medical expenses they should be properly documented with receipts and you should have a written recommendation from your doctor expressing the medical need. Any expense deemed personal rather than medical is not deductible. This should not discourage you from deducting legitimate medical expenses.
The IRS does scrutinize large medical deductions so be sure to obtain expert tax advice. A doctor's recommendation does not guarantee IRS approval. The IRS can and does dispute the medical necessity of expenses even if a doctor's recommendation is provided as backup.
Please see IRS Publication 502 for a complete list of medical expenses which may and may not be deducted.
This article is not a substitute for professional accounting services. Please consult a competent tax professional for answers to your specific questions.
For more information:
Income Taxes At About.com (About.com guide William Perez is a tax professional with a special interest in helping people get out of tax trouble.
Article by: Richard Eustice, former tax professional for over 15 years, retired early due to disability from rheumatoid arthritis.
Source: IRS Publication 502