4 Wild Tax Breaks That People Have Actually Gotten Away With

There are a lot of gray areas in the U.S. tax code. For example, what exactly qualifies as a medical expense? Some medical costs are straightforward, but others aren't quite so obvious. The same can be said for certain education expenses and business deductions.

Because much of the tax code is at least somewhat open to interpretation, people have come up with some creative tax deductions. Here are four examples of things people have claimed as deductions on their tax returns that have actually been allowed by the IRS.  

1. A tax-deductible yacht loan

If you take out a loan to buy a luxury yacht, it might seem like a stretch to try and deduct the interest you pay on the loan.

However, the IRS allows taxpayers who itemize to deduct the interest on as much as $750,000 as qualified personal residence debt. This includes debt on second homes (which many boats qualify as), and it doesn't need to be a mortgage loan. Many boats qualify, and many boat dealers go so far as to use the deductibility of boat loan interest as a selling point. Specifically, a boat meets the IRS's definition of a "second home" if it has a kitchen, somewhere to sleep, and a toilet. And many Americans have successfully deducted thousands of dollars in boat loan interest.

2. A tax-deductible swimming pool

The IRS allows taxpayers who itemize to deduct medical expenses that exceed 7.5% of their adjusted gross income (AGI). The intention of this deduction is to provide financial relief to families with large and often unexpected medical costs, but some taxpayers have become quite creative with it.

Perhaps the most creative use of this deduction (and a very lucrative one) is to deduct the entire cost of a backyard swimming pool. One taxpayer whose physician recommended frequent swimming as a remedy for arthritis deducted the cost of a new swimming pool as a medical expense. The IRS challenged the deduction -- and it was upheld by the court.

3. Luxury exercise equipment

To be clear, a gym membership almost never qualifies as a deductible medical expense. But what about in-home exercise equipment? Think of luxury fitness equipment like Peloton bikes. Equipment like this can be rather expensive, so a tax deduction can obviously lessen the burden. If a doctor recommends cycling as treatment for a chronic condition, in-home exercise equipment can potentially be a deductible cost.

You might face an uphill battle though. The IRS says medical expenses must be for a specific illness or condition, which can be tricky to show. A doctor's prescription (yes, they can prescribe an exercise bike) is a good thing to have as well.

However, it isn't just a medical expense that could be used here. A Peloton or other exercise equipment can be a business deduction if you're a personal trainer or if you are in another line of work that generally requires you to stay in shape.

4. Installing an elevator in your house

You might be noticing a theme with outside-the-box medical expenses. And another one you may not have thought of is the cost to install an elevator in your home. While this may sound like a luxury item (and it typically is), it can also allow a person with mobility issues access to the upper level(s) of their home.

According to Lifeway Mobility, home elevators typically cost between $28,000 and $35,000. But if you can deduct the amount that exceeds 7.5% of your AGI, it can certainly be a big tax break that can help make the elevator more affordable.

To successfully deduct an elevator, a doctor's certification of your mobility issues and the benefits of an elevator should be obtained. And in cases like this (and the pool in the previous example), it's important to mention that the added value to your home cannot be deducted. For example, if the elevator cost $30,000 but increased the fair market value of your home by $10,000, you'd have a $20,000 expense that is potentially deductible.

Not an exhaustive list

As mentioned, there is quite a bit of gray area in the U.S. tax code, so this is just a sample of some of the outside-the-box deductions people have come up with (and have gotten away with).

Just a word of caution: If you have a legitimate tax break that sounds like it could be on this list, it can be a good idea to use it when you file your tax return, but be prepared to document and defend the deduction if and when the IRS asks.

Finally, I can't stress this point enough, but if you're claiming anything that isn't a straightforward tax deduction, it's a great idea to seek the advice of an accountant or experienced tax professional, who can offer personalized guidance for your situation.