Assisted living facilities are a crucial part of our healthcare system. However, the development and operation of these facilities involve substantial capital investments. Beyond the initial construction costs, assisted living facility owners face ongoing tax burdens that can bring their cashflow to a grinding halt.
Fortunately, there's a powerful tax strategy that can help offset these costs: cost segregation. By carefully analyzing your assisted living facility and reclassifying certain components, cost segregation allows for accelerated depreciation timelines, resulting in significant tax savings and improved cashflow over time.
A Cost Seg Primer for Assisted Living Properties
In essence, cost segregation is the process of reclassifying specific building components into categories with shorter depreciation periods. While traditional real estate depreciation spreads deductions over a lengthy timeline (27.5 years is typical for assisted living facilities), cost segregation allows many components of the property to be depreciated over 5, 7 or 15 years.
Here's how this benefits assisted living facility owners:
- Immediate reduction in taxable income: By accelerating deductions, you can lower your taxable income in the earlier years of owning the property.
- Significantly boosted cashflow: Reducing your current tax liability means more cash on hand that can be reinvested, used for upgrades or distributed as profits.
- Enhanced returns over the property's lifespan: The tax savings and cashflow gains realized through cost segregation can compound over time, leading to increased overall profitability.
Why Assisted Living Facilities Are Ideal for Cost Segregation
Assisted living facilities possess a unique combination of assets that make them especially well-suited for significant cost segregation benefits. Some of the key components found in many assisted living facilities include:
- Specialized medical and care equipment: Items like therapy equipment, patient lifts, monitoring systems and medication dispensers often qualify for shorter depreciation schedules.
- Food service and dining facilities: Commercial-grade kitchen equipment, dining furniture and related components offer the potential for accelerated deductions.
- Security and monitoring systems: Advanced surveillance systems, access control technology and fire alarm systems may be eligible.
- Accessibility features: Elevators, ramps, specialized bathroom fixtures and other accessibility improvements could qualify.
- Shorter-lifespan finishes: Flooring (e.g., carpet, specialty tiles), fixtures, window treatments and some decorative elements generally have shorter lifespans compared to the core structure of the building.
Choosing the Right Cost Segregation Partner
While cost segregation can be a highly beneficial tax strategy, achieving the maximum benefits for your assisted living facility depends on partnering with the right specialists. Seek a cost segregation firm with a demonstrated track record in conducting studies specifically for assisted living facilities. This deep understanding of the unique assets and their tax classifications is essential.
A Case Study: Engineered Tax Services in Action
Engineered Tax Services (ETS) exemplifies this focus on assisted living facilities. In a recent project, we identified over $12 million in potential tax savings for a client through a cost segregation study.
This case study demonstrates our ability to uncover significant tax benefits through a meticulous analysis of assisted living facility components. Our team of engineers, construction specialists and tax experts collaborate to ensure you maximize the value of cost segregation for your specific property.
Conclusion
Cost segregation presents a smart and strategic way for assisted living facility investors to enhance cashflow, reduce tax burdens and unlock long-term profitability. By reclassifying eligible building components and accelerating their depreciation, you can reap substantial tax savings.
If you own or invest in assisted living facilities, a cost segregation study can be a valuable tool. Don't miss out on these tax advantages—contact us today!
