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Found in many shapes and sizes, assisted-living facilities are an evergreen property type long favored by investors and developers.  Similar to a multifamily property, the assisted-living facility is generally considered a “long-term stay business,” and carries a corresponding 27.5-year MACRS class life.  Associated personal property and land improvement assets would carry 5 200% DB and 15 150% DB MACRS Class lives.

Though a 27.5-year class life is the typical standard, on rare occasions an assisted-living facility would be assigned a 39-year class life.  Any facility in which the average patient stay is shorter than 30 days may be subject to the transient stay rules issued by the IRS, and therefore subject to the associated 39-year MACRS class life.  A specialized facility that provides short-term patient care, such as a ventilation care facility, is a good example of this type of property.

There are several variables in play that affect how a given property would perform in a cost segregation study.  Location is one major factor – is this a facility set in the suburbs, with a parking lot and lots of land improvements?  Or an urban setting with little in the way of outdoor amenities?   Does the facility have more than one story?  If so, traditionally high-priced real property assets such as stair towers and elevators will come into play.  Is this a general type of facility, or does it provide specialized medical treatment?  If specialty services are provided, such as in a rehabilitation facility or the aforementioned ventilation care facility, there will be a great deal of related equipment to add to the personal property yield.

The recent tax reform only boosts the tax savings possible via cost segregation on an assisted-living facility.  Consider a real-life example, Property AL.   Consisting of a single 23,000SF building, Property AL was acquired and placed-in-service in September of 2020, with a depreciable basis of $3.1M.  This facility didn’t have a great deal of specialty medical equipment, but it did feature a full-service hair salon, community center, and other notable amenities.  Engineers were able to move 22.4% of assets into 5-year personal property, and 10.8% into 15-year land improvements.  Before the TCJA and CARES Act, this study would have resulted in a first-year tax savings of $50,683.  However, this study was performed in the post-tax reform era, and these favorable legislative changes resulted in a seven-fold increase in first-year tax savings, to a total of $356,664.

Whether you are developing, purchasing, or perhaps improving one of these properties, accelerated depreciation could be a valuable resource. If we can be of assistance, please do not hesitate to reach out to the Capstan team.