My wife’s fibromyalgia, rheumatoid arthritis, and back problems require that she have water based physical therapy, so we are considering having a small pool put in our backyard. Considering the financial strain this is going to cause, I’m investigating what kinds of options we have to help finance the installation. I found a helpful article on CNN that discusses tax breaks for home improvement.

Sandy Botkin, CPA, CEO of the Tax Reduction Institute and author of Lower Your Taxes – Big Time! 2007-2008 Edition (Lower Your Taxes Big Time) has this to say about the requirements for writing off your home improvements:

…you must make the improvement to alleviate or address a specific medical condition. Being generally overweight won’t work, but obesity meets the medical criteria. Aching joints won’t get you as far as an official case of arthritis.

And only the treatment counts, so if your physician prescribes a filter to eliminate pollen in your home, but you buy an entire central air-conditioning system, only that filter is deductible.

“The IRS is most likely to challenge big expenses like elevators, outdoor decks and swimming pools — improvements that also could be done for nonmedical reasons,” says Estill. “It’s like when the IRS audits a business. They’re not after advertising and telephone bills. They look at meals, entertainment, travel — things that have a lot of fun associated with them.”

That’s not to say swimming pools are an automatic audit flag, but writing off a $20,000 pool on a $40,000 income might attract unwelcome attention. So if you intend to deduct, cross all the t’s on the paperwork.

Second, make sure you secure a note from the doctor stating that water therapy is critical to your treatment or recovery, not simply that you need to get exercise, Estill says.

“The more long-term the illness or disability, the more likely the IRS will permit it,” he says. “If you say, ‘I put in a swimming pool because I have a three-month rehabilitation program after surgery,’ good luck. I won’t make you any guarantees if I represent you in that one.”

Third, keep the reins on the expense sheet. Botkin shakes his head at the couple who ordered European tiles to match their home’s decor, went whole hog on the surrounding deck, splurged on automation and ran up a $195,000 bill.

“The tax court only allowed the reasonable cost of the pool — end of story,” he says.

If anyone has had experience with writing off a medically necessary home improvement, I would appreciate