Already have the letter written with a friend, but we need to turn this in separately as individual work. So this letter needs to be rewrite with same facts,but looks like different people’s work.
Dear Ms. Shelton:
We are pleased to report the tax research involving the construction of your swimming pool as a medical expense deduction has been completed. The question at hand is whether or not constructing a swimming pool for medical purpose can be deducted as a medical expense. The type of swimming pool built will affect the options available to you on how to treat the construction of the pool. Therefore, depend on this, there are a few different options.
First and foremost, in order for the cost of the swimming pool to be deducted, all other options must be explored and exhausted before constructing the pool in your backyard. The nearest public pool is approximately 10 miles away, the distance of the public pool could be considered as near to your residence. However, since the hours of operation for the public pool will most likely interfere with your work schedule, this presents sufficient need and reasonableness to undergo construction of a personal swimming pool in your backyard. We must reiterate the significance of the community pool locations and operating hours. The deductible of your swimming pool addition hinges on the assumption that there are indeed no other swimming pools which you have access to in a near vicinity and for which the hours of operation significantly interfere with your regular work hours. If you do have access to any pool that does not interfere with your work hours and is available to you everyday, you will not be able to expense the cost of the swimming pool.
Another important aspect to understand is that in order for the construction of the swimming pool to be deductible as a medical expense, the swimming pool must solely be used for medicinal purposes and not for personal use. It should primarily be used by you and no other family member or for entertainment purpose. By ensuring that you follow these guidelines, it will be more likely that you will be able to deduct the cost of constructing the swimming pool and the future maintenance cost. The options below outline what your deduction would be in the year the pool is build and future maintenance cost.
Your first option of swimming pool construction is to build a simple and basic pool, which would cost $45,000 to build. This addition of the basic pool would increase the value of your residence by $5,000. This increase in value is not only important to the value of your residence, but it also is a factor included in the total deduction consideration. The excess of construction cost over the increase in the value of your residence is deductible. Also deductible, are the pool’s maintenance costs that are necessary to operate the pool for medical purpose each year. These costs are deducted in the year in which the expenses are paid for, that exceeds 10% of your adjusted gross income. Your current year’s medical expense of $14,000 is included in the total potential allowable deduction, calculation for total as follows:
$59,000 ($45,000 + $14,000) – 5000 – $7,000 ($70,000 * 10%) = $47,000
Therefore, all aspects considered, option 1 would provide a total potential allowable deduction of $47,000 as medical expense in the year of construction and future maintenance costs as incurred.
The second option available to you is to construct a more attractive a lavish pool, costing a total of $70,000. This particular pool would increase the value of your residence by $15,000, however the extra increase in value over the basic pool cost, of $10,000, would not be considered deductible. Also not deductible would be any costs incurred for landscaping, lighting, architectural features of any built enclosure, etc., or any expenses other than maintenance costs that directly assist in the upkeep of the pool as a medical necessity. Any qualifying maintenance cost, similar to option 1, can be deducted in the amount that exceeds 10% of your adjusted gross income. Again, similar to option 1, your previous medical expenses that you have paid this year of $14,000 are included in your total potential medical deduction, the calculation for total as follow:
$59,000 – $15000 (increase in value of home) – $7,000 ($70,000 * 10%) = $37,000
Therefore, all aspects considered, option 2 would provide a total potential allowable deduction of $37,000 as medical expense in the year of construction and future maintenance costs as incurred.
The third and last option that we present you with, unlike the first two options, which recover your medical cost in the year that they are incurred, is electing to depreciate the total cost of the swimming pool over the span of seven years. This seven years allocation is the maximum allowable time span set forth by the IRS. The amount used as your depreciation base is the same regardless of your choice to build either a basic or more costly pool. This means that if you were to construct the basic pool, your expenditure of $45,000 would be recovered over the seven years. Your tax treatment would be the same concerning the construction of the expensive pool costing $70,000.
We suggest that Ms. Shelton build the basic pool and deduct that expense, up to $47,000 in the year the pool is built and in the future, deduct maintenance expenses. We believe this is the best option as it shows that the pool is primarily used for medical reason and there is no personal motivation involved in considering the extra costs that may be incurred. In our opinion, the tax treatment presented in option 1 would be the most acceptable by the IRS without raising any concerns for potential disputes.