Has your doctor recommended that you purchase a hot tub to help alleviate chronic conditions, or perhaps to help recover from surgery or medical ailments? If so, it should be possible for you to claim a deduction for your new spa. When filing medical expenses, you can include amounts you pay for special equipment installed in a home or for home improvements, so long as the main purpose is medical care for you, your spouse, or your dependent.
You can include in medical expenses amounts you pay for special equipment installed in a home, or for home 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. 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.
Tax Deductions for Medically Prescribed Hot Tub
Arthritis is no doubt a debilitating disease. As with all diseases, it can be extremely costly. Where a qualified physician has recommended the installation of a spa or pool, some of the stings may be taken out of the cost of the person affected can secure a medical expense income tax deduction. Remember that a written recommendation is the first and most important step in the deduction process.
People are generally aware that they can deduct medical expenses for payment to doctors, dentists, registered nurses, and prescription drugs. But they may not be aware that special equipment, including a spa or pool, which is installed principally for the medical care of the taxpayer or taxpayer’s dependent (e.g., a child or a mother), also may result in full or partial tax deduction.
Furthermore, if the item qualifies as a capital-improvement medical deduction, even if only part of the cost is deductible, the entire maintenance cost (repairs, cleaning, electricity, etc.) is deductible on each year’s tax return. Of course, because of the 7.5 percent limitation (described in the next section), the annual upkeep may not result in annual tax savings. A renter is eligible for the same installation and upkeep deductions as described above.
Calculating Your Situation
If the customer accentuates the spa or pool installation with extras (e.g., special architecture which translates into “lavish or extravagant”), then only the reasonable cost of the installation will be allowed as a deduction.
If the installation increases the value of the residence, the arthritic homeowner may deduct the difference between the installation cost and the increased value of the residence.
For example, consider an installation that costs $17,000; the value of the residence before the installation is $200,000 and after the installation, it is $210,000 – then, the homeowner may deduct $7,000. However, if the value of the residence was not increased as a result of the installation, the entire $17,000 would constitute a medical deduction. Please note that the entire deduction is permitted to be taken in one year, as compared with business improvements, which are required to be depreciated over a period of more than one year.
Medical expenses must be reduced by 7.5 percent of adjusted gross income before the expenses will result in actual tax savings. Therefore, if in the prior example, the homeowner’s adjusted gross income was $80,000, their net tax deduction would be $1,000 ($80,000 x 7.5 percent = $6,000; $7,000 minus $6,000 = $1,000). Of course, since the 7.5 percent deduction is not met, all other medical expenses for the year become fully deductible and will result in tax savings.
Another point to remember for that time in the future when the home is sold and any gain on the sale must be calculated is that the homeowner cannot increase the home’s tax basis (e.g., the cost of the house plus improvements made to the house) to the extent that the homeowner has taken a tax deduction.
Guidance from the IRS on issues and interpretations of the tax laws: Over the years, several pro-taxpayer rulings and case decisions have been issued in the spa and pool area. Of special interest is a private letter ruling (this is a ruling issued to the specific taxpayer who requested the interpretation to ensure their deduction) involving a person with severe Osteoarthritis, a wearing out of the joints, which afflicts nearly 15.8 million Americans. The IRS ruled that the taxpayer could deduct the cost of an exercise pool under the following circumstances:
• He was advised by his physician to swim several times a day.
• There were no adequate facilities close to his residence.
• The pool was specifically designed and was not suitable for general recreational use.
• The primary purpose of the pool was for medical care.
Even if other people can use the pool or there is a pool nearby, it does not mean that the deduction, described in this article, would necessarily be lost. Each situation stands on its own facts.
If you would like further information about medical-expense tax deductions, suggest that your accountant request Publication 502 from the Internal Revenue Service.
By Allen E. Weiner, CPA, J.D., LL.M
AQUA • HEALTH & FITNESS • 38 • MARCH 1990
Allen Weiner is a tax partner with Holtz Rubenstein & Co., Certified Public Accountants, Melville, New York.
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