What Is the Depreciation Life of a Pool?
Understand how pool depreciation works, including classification, lifespan, and methods used to calculate its value over time for tax and accounting purposes.
Adding a pool to a property is a significant investment, but for tax purposes, it’s also an asset that depreciates over time. Depreciation allows property owners to recover costs associated with wear and tear, potentially providing tax benefits. The time it takes for a pool to fully depreciate depends on its classification and whether it’s used for personal or business purposes.
Classifying the Pool for Depreciation
For tax purposes, a pool is a depreciable asset, but its classification depends on its use and location. The IRS distinguishes between pools that are part of a building’s structure and those considered separate land improvements, which affects the depreciation schedule and deductions available.
A pool permanently attached to a building, such as an indoor pool in a hotel or apartment complex, is classified as part of the building. It follows the same depreciation schedule as the structure: 27.5 years for residential rental properties and 39 years for commercial buildings under the Modified Accelerated Cost Recovery System (MACRS).
An outdoor pool not structurally integrated with a building is considered a land improvement. The IRS assigns land improvements—including pools, fences, and driveways—a 15-year recovery period under MACRS.
This classification also determines eligibility for accelerated depreciation. Land improvements may qualify for bonus depreciation and Section 179 expensing, while pools classified as part of a building follow a longer depreciation schedule and are generally ineligible for these accelerated deductions.
Residential vs. Commercial Pools
How a pool is used affects its depreciation treatment. Residential pools are considered personal-use assets unless they generate income, such as in a rental property. Even then, the pool must primarily serve tenants rather than the owner.
Commercial pools in hotels, fitness centers, and apartment complexes are business assets because they contribute to revenue generation. This classification allows for depreciation deductions that offset taxable income. Additionally, commercial pools may have deductible maintenance and compliance costs.
Business-owned pools may also qualify for accelerated depreciation methods, such as bonus depreciation or Section 179 expensing, depending on their classification. Residential rental properties, while eligible for depreciation, generally do not benefit from these accelerated methods unless specific conditions are met.
Determining Depreciable Life
The depreciation period for a pool depends on its classification and integration into the property. The IRS provides standardized recovery periods, but variations can arise based on modifications or renovations. A pool installed as part of a larger property upgrade may be subject to different depreciation rules than one added as a standalone improvement.
Local building codes and industry standards can also influence a pool’s expected useful life. Commercial pools in high-traffic environments may require frequent resurfacing or equipment upgrades, impacting depreciation calculations. While tax rules dictate the formal recovery period, real-world maintenance costs and replacement cycles should be considered when evaluating the financial impact of a pool investment.
Depreciation schedules can also be affected by ownership changes or property reclassifications. If a property is converted from personal use to rental status, depreciation begins from the date of conversion based on the pool’s remaining useful life. If a business sells a property with a pool, the remaining depreciation must be accounted for in the asset disposition process. Tracking depreciation accurately helps avoid tax complications when transferring ownership.
Depreciation Methods
Once the depreciable life of a pool is determined, the next step is selecting the appropriate depreciation method. The IRS allows different approaches depending on the asset’s classification and the taxpayer’s financial strategy. Each method affects the timing and amount of deductions, influencing cash flow and tax liability.
Straight-Line
The straight-line method is the simplest and most commonly used depreciation approach. Under this method, the cost of the pool is evenly distributed over its assigned recovery period. The formula for annual depreciation is:
Annual Depreciation = (Cost of Pool – Salvage Value) / Depreciable Life
For example, if a commercial outdoor pool costs $150,000 and is classified as a 15-year land improvement with no salvage value, the annual depreciation expense would be:
150,000 / 15 = 10,000
This means the owner can deduct $10,000 per year for 15 years. The straight-line method provides consistency, making financial planning and reporting more predictable. However, it does not allow for accelerated deductions, which may be a drawback for businesses looking to offset taxable income more aggressively in the early years.
MACRS
The Modified Accelerated Cost Recovery System (MACRS) allows for larger deductions in the earlier years of an asset’s life. Pools classified as land improvements follow the 15-year MACRS schedule, while those integrated into buildings follow the 27.5-year (residential rental) or 39-year (commercial) schedule.
MACRS uses a declining balance method before switching to straight-line depreciation. For a 15-year asset, the IRS assigns a 150% declining balance rate, meaning depreciation is calculated as:
Depreciation Expense = Remaining Book Value × (150% / Recovery Period)
In the first year, only a half-year of depreciation is allowed due to the mid-year convention, which assumes assets are placed in service halfway through the year. This results in a lower first-year deduction but accelerates depreciation in subsequent years. MACRS is useful for businesses looking to reduce taxable income in the short term, though it requires careful tracking of book value and depreciation schedules.
Bonus Depreciation
Bonus depreciation allows businesses to deduct a significant portion of an asset’s cost in the year it is placed in service. Under the Tax Cuts and Jobs Act (TCJA) of 2017, bonus depreciation was set at 100% for qualified property placed in service between September 27, 2017, and December 31, 2022. This percentage began phasing down in 2023, decreasing to 80% in 2023, 60% in 2024, and continuing to decline annually until it is eliminated in 2027 unless extended by new legislation.
To qualify, the pool must be classified as a land improvement with a 15-year recovery period under MACRS. If eligible, a business could immediately deduct 80% of the pool’s cost in 2024, with the remaining 20% depreciated under MACRS. For instance, a $200,000 pool placed in service in 2024 would allow for:
200,000 × 80% = 160,000 (immediate deduction)
The remaining $40,000 would be depreciated over 15 years using MACRS. Bonus depreciation provides substantial upfront tax savings, making it beneficial for businesses with high taxable income. However, since it reduces future depreciation deductions, companies should evaluate their long-term tax strategy before electing this method.