Cost Segregation for Senior Living Properties
Senior living properties—including independent living, assisted living, and memory care facilities—contain substantial value in components eligible for accelerated depreciation. Medical equipment, specialized furnishings, call systems, commercial kitchens, and extensive common areas all qualify for shorter depreciation lives. For senior living operators and investors, cost segregation is essential to optimizing after-tax returns.
How Cost Segregation Works for Senior Living
A cost segregation study for senior living facilities identifies the specialized components that can be depreciated over 5, 7, or 15 years instead of the standard 39-year schedule.
Engineers with healthcare facility experience analyze resident rooms, common areas, dining facilities, medical spaces, and site improvements. Senior living properties typically have higher percentages of accelerable components than standard apartments.
The detailed allocation allows your accountant to claim accelerated deductions. For existing properties, a catch-up adjustment captures all missed depreciation in the current year.
Why Senior Living Owners Overpay in Taxes
Senior living facilities combine elements of hospitality, healthcare, and residential property—creating extensive accelerable components. Furnishings, medical equipment, commercial kitchens, and specialized systems are all short-life property.
Without a cost segregation study, all of this specialized value is depreciated over 39 years. For a $20 million senior living facility, 25-35% in accelerable components means $5-7 million that could be depreciated faster.
Many senior living operators treat their facilities like standard apartments. In reality, the specialized nature of senior care creates significantly more acceleration opportunity.
Property Components Commonly Reclassified
Senior living facilities typically achieve 25-35% accelerable percentages. Memory care and skilled nursing facilities with more medical equipment often achieve higher results.
Timing, Retroactive Studies, and Cash Impact
For new senior living construction or acquisition, conducting a cost segregation study immediately maximizes first-year deductions. The extensive specialized components make early study particularly valuable.
For existing facilities, retroactive studies often generate substantial catch-up deductions. Operators who have owned facilities for years may have significant missed depreciation available.
Cash impact is immediate: reduced tax liability means more capital for facility improvements, staffing investments, or investor distributions. The tax savings often fund meaningful operational improvements.
Who Qualifies and Who Does Not
Good Candidates
- •Owners of independent living, assisted living, and memory care facilities
- •Skilled nursing facility owners and operators
- •Senior housing REITs and investment funds
- •Developers completing new senior living construction
- •Operators completing renovation or repositioning projects
- •Properties with cost basis of $3 million or more
May Not Benefit
- •Properties leased to third-party operators (different analysis)
- •Facilities with minimal specialized equipment
- •Owners planning immediate sale
- •Operators without taxable income
Common Mistakes Senior Living Owners Make
Treating the facility like standard multifamily
Senior living facilities are fundamentally different from apartments. The specialized medical, dining, and care components create additional acceleration opportunity.
Ignoring commercial kitchen value
Full-service dining operations require extensive equipment. This is often one of the most valuable accelerable categories.
Not studying renovation projects
Memory care conversions, kitchen upgrades, and common area renovations create new depreciable basis. Each project should be analyzed.
Overlooking nurse call and medical systems
Emergency call systems, monitoring equipment, and medical infrastructure are short-life property with significant value.
Assuming the management company handles optimization
Tax planning is an owner responsibility. Management companies don't typically provide cost segregation guidance.