Not all expenditures to aid the disabled qualify for credit.

• Author: Koppel, Michael D.
• Position: Credits Against Tax

The disabled access credit provides a tax incentive for small businesses to make improvements to enable disabled patrons to more easily access their business premises. The credit largely covers expenditures that arise under the Americans with- Disabilities Act of 1990 (ADA). To be eligible, a taxpayer must be a small business, defined as either having gross receipts in the previous tax year of not more than $1 million or employing not more than 30 employees.

Basically, a taxpayer may take a credit equal to 50% of the eligible expenditure. The first $250 of the expenditure is not eligible, as well as costs exceeding $10,250. The credit lowers the cost basis of the capital item, such that the remaining costs of the item may still be deducted as depreciation expense. For example, if a taxpayer in the 30% tax bracket makes a $10,250 eligible expenditure, the government effectively pays for $6,575 of the cost of the item through tax credits and tax deductions. A $10,250 eligible expenditure (the maximum amount) would generate a $5,000 tax credit and a further depreciation deduction of $5,250 ($10,250 cost -- $5,000 credit). With a 30% rate, the total tax benefit would be $6,575 ($5,000 tax credit + $1,575 ($5,250 x 0.30) depreciation expense), a 64% tax benefit.

The tax credit is calculated on Form 8826, Disabled Access Credit. Eligible items include costs incurred to:

1. Remove barriers that prevent a business from being accessible to (or usable by) individuals with disabilities;

2. Provide qualified interpreters or other methods of making audio materials available to hearing-impaired individuals;

3. Provide qualified readers, taped texts and other methods of making visual materials available to individuals with visual impairments; or

4. Acquire or modify equipment or devices for individuals with disabilities.

While not challenging many expenditures meeting the first criterion, the IRS has taken a stricter view of the fourth criteria. The issue has arisen when several companies that market medical devices for healthcare providers touted the credit as a benefit for purchasing their products. They argued that, because their medical products were designed to be accessible by individuals with disabilities, the full price of the product met the requirements for the credit. The Service has taken a dim view of their claim and has addressed the issue of eligible expenditures in two rulings. Although these rulings are only applicable to that taxpayer and...