Tax-deductible home improvements
Such valuation issues also could help in convincing the IRS that
the cost, or at least a part of it, for a swimming pool is deductible.
the most common home improvement tax deduction question," says Fisher. "And
there are times when a pool could be deductible. If it's prescribed as physical
therapy, an ongoing treatment and not just for a few weeks. You also need to prove
it was for medical purposes and are using it as prescribed. Special equipment
bolsters the argument, for example, a bar to hold onto or special chairs, special
jets beyond a typical pool."
In such cases, the extent that the pool cost exceeds the
improvement value is deductible. But in order to successfully claim the deduction,
you'll need documentation.
The best audit ammunition is a doctor's
letter or statement detailing why a home improvement is recommended therapy for
treatment of a chronic condition. "If there are alternatives, the IRS might
say no, so be ready to show that the alternatives were too burdensome or didn't
address your condition,'' says LeValley. In the case of a pool, for example, showing
that not every nearby gym has a pool or not every pool is open year round could
help convince the IRS of the medical claim's validity.
getting into situations that are very fact-specific and you should pretty clearly
have it documented that any improvement is a medical necessity," agrees Luscombe.
Finally, when claiming medical deductions, both the medically
necessary home improvements as well as the more run-of-the-mill health care costs
must be itemized on Schedule A. And only the amount that exceeds 7.5 percent of
your adjusted gross income is deductible.
If you have to make
major residential renovations, that threshold might not be a problem. But if it
looks like you might fall just short of the required amount, coordinated health
care and tax planning could help.
Consider bunching your expenses,
including home improvements, when possible. "You probably don't want to wait
on serious medical conditions," says Luscombe, "but if it's possible
to push improvements into one tax year so that you get over the 7.5 percent, do
And don't forget about the alternative minimum
tax (AMT). If you end up facing this parallel tax, the threshold to deduct medical
expenses goes from 7.5 percent to 10 percent. Talk with your tax adviser or use
the IRS's AMT online calculator to see if the tax might pose problems with any
medically-based home improvements you plan to make.