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Medical home improvements: Sink or swim

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in Small Business Tax

Q. We plan to build a swimming pool and sauna in our backyard. If these help my wife’s medical condition, can we write off the cost? E.R., Holmdel, NJ

A. Yes, with certain restrictions. If the home improvements are medically necessary, you can claim the difference between the cost and the increase in the home’s value as a medical expense (subject to the usual 7.5%-of-AGI threshold).

For example, if the pool and sauna cost you $30,000 and the increase in the home’s value is $10,000, you can deduct $20,000. To be medically necessary, the expenses must be incurred primarily for the prevention or alleviation of a physical or mental defect or illness. (IRS Regulation 1.213-1[e])

Tip: If you meet those requirements, you can also write off your annual pool and sauna maintenance expenses, subject to the 7.5% threshold for that particular year.

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