Can You Write Off a Pool on Your Taxes?

Homeowners question if a swimming pool offers tax benefits. Most personal-use pools do not qualify for tax deductions; they are personal expenses. However, certain circumstances allow for tax advantages. These exceptions involve the pool serving a medical necessity, being part of a rental property, or being used directly for a business purpose. Understanding these situations helps navigate tax rules for home improvements.

Understanding Home Improvement Tax Rules

Home improvements, including a swimming pool, are categorized differently from repairs for tax purposes. Repairs maintain a home’s current condition and do not add significant value or prolong its life, and are not tax deductible for personal residences. In contrast, a capital improvement adds to a home’s value, prolongs its useful life, or adapts it to new uses. A swimming pool is considered a capital improvement.

While the cost of a personal-use capital improvement is not immediately deductible, it plays a role in determining your home’s “cost basis.” The cost basis is your investment in the home, including the purchase price and certain closing costs. Capital improvements increase this cost basis.

Increasing your home’s cost basis is beneficial because it can reduce the capital gains tax you owe when you sell the property. When you sell your home for more than its adjusted cost basis, the difference is a capital gain. A higher cost basis means a lower taxable gain, saving you money on taxes.

Qualifying a Pool as a Medical Expense

Deducting the cost of a swimming pool as a medical expense is subject to requirements. The pool must be primarily for medical care, as prescribed by a physician, rather than for general health or recreation. Qualifying conditions include severe arthritis, muscular dystrophy, or chronic pain requiring aquatic therapy. General wellness or weight loss alone do not qualify.

Deductible costs can include the pool’s construction, installation, special equipment, and ongoing maintenance. Only the amount of the cost that exceeds the increase in the home’s value is deductible. For example, if a pool costs $80,000 to build but increases the home’s value by $30,000, only $50,000 is considered a medical expense deduction. If the improvement does not increase the home’s value, the entire cost is included.

Medical expenses, including qualifying home improvements, are only deductible to the extent they exceed 7.5% of the taxpayer’s Adjusted Gross Income (AGI). Maintaining documentation, such as a doctor’s prescription, a letter of medical necessity, receipts for all expenses, and appraisals to determine the home’s value increase, is required to substantiate the deduction.

Tax Treatment for Rental Property Pools

When a swimming pool is part of a property rented out, its tax treatment differs from that of a personal residence. A pool on a rental property is considered a capital asset. Its cost can be depreciated over its useful life, 27.5 years for residential rental property. Depreciation is a non-cash expense that reduces the taxable rental income over time.

Ongoing maintenance expenses for a rental property pool are deductible. These include costs for cleaning, chemicals, and routine repairs, as they are considered ordinary and necessary business expenses. These deductions help offset the rental income generated by the property.

Rental income and expenses are subject to passive activity rules. These rules can limit the deductibility of losses from rental activities, allowing passive losses to offset only passive income. However, exceptions exist for “active participation” in rental real estate activities, which allow taxpayers to deduct up to $25,000 in passive losses against non-passive income, subject to AGI limitations.

Deducting a Pool for Business Use

A swimming pool might be directly used for a trade or business. To qualify for a deduction, the pool must be used exclusively and regularly for business purposes. Examples include operating a swim school from home or using the pool for physical therapy as part of a professional practice. Occasional use or entertainment for clients does not meet the criteria.

Costs associated with a business-use pool, including a portion of its initial cost through depreciation and ongoing maintenance expenses, can be deducted as ordinary and necessary business expenses. This treatment is similar to other assets and expenses incurred in a business. For instance, the cost of chemicals, cleaning, and utilities directly attributable to business use are deductible.

Maintaining records is important to substantiate the business use and related expenses. This documentation should demonstrate the exclusive and regular business application of the pool, which supports any deductions claimed.