How to Claim a Tax Credit for Handicap Accessible Equipment

The United States tax code provides financial relief for businesses and individuals who invest in making their properties more accessible. These incentives are designed to help absorb some of the costs related to equipment and modifications for individuals with disabilities. For businesses, this often involves a tax credit aimed at encouraging compliance with federal accessibility standards. Individuals may also find tax benefits for medically necessary improvements made to their personal residences.

Determining Eligibility for the Disabled Access Credit

The Disabled Access Credit is specifically for “eligible small businesses” that incur expenses to improve accessibility. To qualify, a business must meet one of two specific tests in the preceding tax year. The first is a gross receipts test, and the second is an employee test. A business only needs to satisfy one of these to be eligible.

The gross receipts test requires that the business had $1 million or less in gross receipts for the tax year before the one in which the credit is claimed. Gross receipts are the total amounts the organization received from all sources during its annual accounting period, without subtracting other expenses.

If a business does not meet the gross receipts test, it may still qualify under the employee test. This test requires the business to have employed 30 or fewer full-time employees during the preceding tax year. The IRS defines a full-time employee as someone who is employed for at least 30 hours per week for 20 or more calendar weeks in the tax year. For instance, a business with $1.5 million in gross receipts but only 25 full-time employees in the prior year would be considered an eligible small business.

Identifying Qualifying Expenditures

For a business that meets the eligibility criteria, the next step is to identify which expenses qualify for the Disabled Access Credit. These costs, called “eligible access expenditures,” must be incurred to enable the business to comply with the requirements of the Americans with Disabilities Act (ADA). The expenses must be reasonable and necessary, and costs for new construction are not eligible.

Removal of Architectural Barriers

A primary category of qualifying expenditures involves the removal of architectural, communication, or transportation barriers. This includes physical changes to a facility to make it more accessible, such as the installation of ramps, the widening of doorways, or the modification of restrooms to include grab bars and accessible stalls. Creating designated accessible parking spaces is another common expenditure in this category.

Provision of Auxiliary Aids and Services

Businesses can also claim the credit for costs associated with providing auxiliary aids and services to ensure effective communication. This can include paying for qualified sign language interpreters for customers or employees who are deaf or hard of hearing. Providing qualified readers for individuals with visual impairments or furnishing materials in accessible formats like Braille, large print, or audio files are also eligible.

Modifying or Acquiring Equipment

The cost of acquiring or modifying equipment or devices for individuals with disabilities is another type of qualifying expense. This could involve purchasing adaptive software that allows a visually impaired employee to use a computer or buying specialized machinery that can be operated by an employee with a physical disability. Tables that can be elevated or lowered for accessibility are an example of equipment that qualifies.

Providing Other Accommodations

Other reasonable accommodations that help a business comply with the ADA also qualify. This can include the costs of consulting services focused on identifying necessary accessibility improvements.

Calculating the Credit Amount

The calculation for the Disabled Access Credit is based on a specific formula applied to the total eligible access expenditures for a given tax year. The credit is equal to 50% of the qualifying expenses that fall between a floor of $250 and a ceiling of $10,250. The first $250 of expenses does not count towards the credit calculation.

To illustrate, consider a business that spends $6,000 on qualifying expenditures. First, subtract the $250 floor, which leaves $5,750. The credit is 50% of this amount, resulting in a tax credit of $2,875. This non-refundable credit directly reduces the business’s tax liability.

The calculation changes if total spending exceeds the $10,250 ceiling. For example, if a business incurs $15,000 in eligible expenses, the amount used for the calculation is capped. The creditable portion is the amount between $250 and $10,250, which is a total of $10,000. The credit is 50% of this $10,000, which equals $5,000, the maximum credit available in a single tax year.

How to Claim the Disabled Access Credit

Once a business has confirmed its eligibility and calculated the credit, the final step is to formally claim it. This is done by completing and filing IRS Form 8826, Disabled Access Credit, with the business’s annual federal income tax return. This form is used to report the total eligible access expenditures and to officially calculate the credit amount.

After completing Form 8826, it must be submitted as part of the business’s overall tax filing. The calculated credit from Form 8826 is transferred to Form 3800, General Business Credit. The total from Form 3800 then flows to the business’s main income tax return, such as Form 1120 for a corporation, Form 1065 for a partnership, or Schedule C (Form 1040) for a sole proprietorship. It is important to keep detailed records and receipts of all accessibility-related expenses to support the claim.

Tax Deductions for Home Modifications

Separate from the business credit, individuals can claim a tax deduction for the costs of making accessibility improvements to a personal residence. This benefit falls under the rules for the medical expense deduction. A deduction reduces a taxpayer’s taxable income, whereas a credit reduces the tax owed.

The principle is that the cost of a medically necessary capital improvement to a home can be treated as a medical expense. This is only to the extent that the cost of the improvement exceeds any resulting increase in the home’s fair market value. For example, if a homeowner installs an elevator for medical reasons at a cost of $20,000 and an appraisal determines it increased the home’s value by $12,000, only the remaining $8,000 is considered a potential medical expense.

If an improvement does not increase the home’s value, the entire cost may be deductible. Claiming this deduction has further limitations. A taxpayer must itemize their deductions on Schedule A of Form 1040. Furthermore, total medical expenses are only deductible to the extent they exceed 7.5% of the taxpayer’s Adjusted Gross Income (AGI).