Problem 12-28 (LO. 3)

Ahmed Zinna, one of your clients, owns two retail establishments in downtown Charlotte and has come to you seeking advice concerning the tax consequences of complying with the Americans with Disabilities Act. He understands that he needs to install various features at his stores (e.g., ramps, doorways, and restrooms that are handicap accessible) to make them more accessible to disabled individuals. He asks whether any tax credits are available to help offset the cost of the necessary changes. He estimates the cost of the planned changes to his facilities as follows.

Location	Projected Cost
Calvin Street	$22,000
Stowe Avenue	8,500

Ahmed reminds you that the Calvin Street store was constructed in 2004 and that the Stowe Avenue store is in a building that was constructed in 1947. Ahmed operates his business as a sole proprietorship and has approximately eight employees at each location.

Complete the letter to Ahmed in which you summarize your conclusions concerning the tax consequences of his proposed capital improvements.

Hoffman, Maloney, Raabe, & Young, CPAs 5191 Natorp Boulevard Mason, OH 45040

September 29, 2015

Mr. Ahmed Zinna 16 Southside Drive Charlotte, NC 28204

Dear Mr. Zinna:

This letter is in response to your inquiry regarding the tax consequences of the proposed capital improvement projects at your Calvin Street and Stowe Avenue locations.

As I understand your proposal, you plan to incur certain expenditures that are intended to make your stores more accessible to disabled individuals in accordance with the Americans with Disabilities Act. The capital improvements that you are planning (e.g., ramps, doorways, and restrooms that are handicap-accessible) Selectqualifydo not qualifyItem 1 for the disabled access credit if the costs are incurred for a facility that was placed in service before November 6, 1990. The projected expenditures of $ for your Stowe Avenue location qualify for the credit. In addition, the credit is calculated at the rate of % of the eligible expenditures that exceed $ but do not exceed $ . Thus, the maximum credit in your situation would be $ . You should also be aware that the basis for depreciation of these capital improvements would be reduced to $ , the amount of the expenditures reduced by the amount of the disabled access credit. The capital improvements that you are planning for your Calvin Street location, even though they Selectqualifydo not qualifyItem 8 for the disabled access credit, Selectmaymay notItem 9 be depreciated.

Should you need more information or need to clarify the information in this letter, please call me.

Sincerely,

Raymond Cook, CPA Partner