Q Earlier this year, I spent approximately $30,000 making various structural changes to my office building (which I purchased in 1989), in order to accommodate disabled patients. My accountant says I must depreciate these as improvements over a 39-year life, but I thought some of the cost could be immediately written off. Who is correct?
A Section 190 of the federal tax law allows doctors to immediately deduct up to $15,000 of expenditures made to accommodate disabled and/or elderly patients. Furthermore, Section 44 of the tax law allows a disabled access tax credit in an amount equal to 50% of the expenditures between $250-$10,250 made annually, thereby providing a maximum annual tax credit of $5,000.
The improvements made to your facility should qualify, since the building was in use on or before Nov. 5, 1990. The Americans with Disabilities Act (ADA) tax credit would reduce your 2001 federal income tax liability on a dollar-for-dollar basis.
In order to qualify, you should have your tax preparer complete Form 8826 to calculate the proper credit and apply it to reduce your current year’s federal income tax liability. The $5,000 ADA tax credit is available in addition to the $15,000 expensing election also mentioned.
Q Over the past few years, I have funded a non-deductible IRA contribution but did not file Form 8606 with my tax return. My CPA said not to worry about it; but I was wondering if this will cause me to have to pay taxes on the non-deductible amounts contributed to the IRA.
A No. Your failure to file Form 8606, which establishes the total non-deductible IRA contributions you have made, will not make you owe additional federal and state income taxes. Rather, this form simply gives the IRS the information necessary to calculate the tax you would owe when you actually begin taking contributions after you retire.
Since you failed to file Form 8606 in the past, you should simply catch up when you file your 2001 return. You should list the amounts contributed for the current year, as well as the amounts contributed for all previous years on the separate line that requests that information. Then simply attach a note that you failed to file Form 8606 during prior years and that you are electing to include all the prior years’ contributions on the current year’s return.
Q My husband and I have transferred most of our assets into a revocable living trust, but we still own our home in our joint names. If we transfer the title of our home into the trust and later sell our personal residence, will we still be able to avoid taxes on the first $500,000 of gain from the sale of our home?
A Yes. Transferring assets into a revocable trust during your lifetime has no effect on federal income or estate taxes. Even if the trust is set up using the name of only one spouse, as a married couple you are still eligible for the full $500,000 exclusion, providing that each of you have occupied the home as your principal residence for at least two years.