Is the cost of an assisted living facility tax deductible?
The building cost of an assisted living facility is not immediately deducted in full, but it is depreciated over time. Under standard IRS rules, commercial real estate is depreciated over 39 years. However, with a cost segregation study, components of your assisted living facility — such as specialty flooring, electrical systems for medical equipment, nurse call systems, cabinetry, and site improvements — are reclassified into 5, 7, or 15-year depreciation categories. This dramatically accelerates your deductions, allowing you to recover a much larger portion of your facility's cost in the early years of ownership rather than spreading it evenly over 39 years.
What is cost segregation and how does it work for assisted living facilities?
Cost segregation is an IRS-approved tax strategy that involves an engineering-based study to reclassify components of your assisted living facility from 39-year depreciation into shorter 5, 7, or 15-year categories. Items like specialty flooring, cabinetry, electrical systems for medical equipment, and site improvements all qualify. This accelerates your depreciation deductions, generating significant tax savings and improved cash flow in the early years of ownership.
How much can an assisted living facility owner save with a cost segregation study?
Savings depend on your facility's depreciable basis, age, and construction complexity, but the results are typically substantial. Seneca clients average a first-year deduction of $171,243. For a large assisted living facility valued between $3M and $10M, first-year savings typically range from $200,000 to $400,000. The ROI on the study itself frequently exceeds 10:1 to 25:1 — meaning for every dollar spent on the study, you recover $10 to $25 in tax savings.
Can I do a cost segregation study on an assisted living facility I purchased years ago?
Yes, this is called a lookback study and it's one of the most powerful options available. If you purchased, constructed, or renovated your assisted living facility within the last 15 years, you can still claim all missed depreciation. Using IRS Form 3115, you capture every unclaimed deduction in a single tax year without having to amend prior returns. The lookback study process and deliverables are identical to a current-year study.
What components of an assisted living facility qualify for accelerated depreciation?
Assisted living facilities contain numerous components that qualify for shorter depreciation lives. Common examples include specialty flooring and wall coverings in resident rooms, electrical systems supporting medical or life-safety equipment, nurse call systems, emergency lighting, plumbing fixtures, built-in cabinetry, commercial kitchen equipment, exterior signage, parking lot improvements, landscaping, and fencing. Seneca's engineers systematically identify every qualifying component to maximize your benefit.
Do I need an on-site inspection, or can the study be done virtually?
Both options are available. Seneca's virtual property tour is a 30-45 minute guided video call during which you walk the engineering team through all areas of your assisted living facility. This eliminates travel expenses, causes no disruption to residents or staff, and typically results in lower overall study costs with a faster turnaround of 2-3 weeks. On-site visits are also available for clients who prefer them or whose properties have exceptional complexity. The engineering quality and IRS compliance are identical for both options.
What happens if the IRS audits my cost segregation study?
Every Seneca study includes an AuditDefense guarantee at no additional charge, for as long as you own the property. If the IRS audits your cost segregation, Seneca's team handles all communications, provides supporting documentation, and has cost segregation specialists respond directly to IRS inquiries. If an audit reveals a material issue with the study, Seneca will refund the cost of the study. The engineering-based methodology and strict IRS compliance keep audit risk extremely low.
What is the minimum property value required for a cost segregation study to make sense for an assisted living facility?
Most assisted living facilities with a depreciable building basis of $300,000 or more are strong candidates for a cost segregation study. Given that a typical study delivers an ROI of 10:1 to 25:1, even modestly valued facilities can generate meaningful tax savings that far outweigh the cost of the study. Seneca offers a free, no-obligation consultation to assess your facility's eligibility and provide a preliminary savings estimate before you commit to anything.