I put $40K into restoring it and played up the theme that it was the old.

I restored a home that sat under 4 feet of water for 2 weeks.  

I have already got paid by the insurance .now it comes to signing the contract with this restoration company ( the same company that dry the house ) , and their contract was very basic .. it didn’t list in detail of what they were going to do  .. for example 1.initial material ___$upfront 2.drywall / paint  _____ $upon completion 3.Cabinet completion _____ $upon completion 4.Flooring _____ $ upon completion 5. 

Hopefully, at the end of this journey I will view this problem as more of an opportunity, as I am sure there are plenty of other cigarette smoke-filled homes waiting to be restored. 

Then I donate the toilet to the local Habitat for Humanity Restore for a tax credit.  

You might also qualify for the de minimis one that you mention since it is line item amounts 2,500 or less.I don't see this as strict adaptation, and nor would it be betterment or restoration.

However, lately, I've been researching co-living and short-term rentals, and I believe the property would be more attractive with a restored pool.

They have redemption rights, which would restore title to the owner and the liens would re-attach.2. 

There are ways to conduct a one-time restoration of benefits, or to restore benefits, but those require you to refinance the existing mortgage into a conventional loan, or no longer own the home, so they probably aren't worth it with your current scenario. 

:nono: However, fixing something just to restore it to it's former state sounds ok.