Cost Segregation Case Study – Assisted Living

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    • Jan 24, 2025
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Maximize Your Assisted Living’s Tax Strategy

What is Cost Segregation
Cost segregation is an effective tax planning strategy that helps businesses and individuals involved in constructing, purchasing, expanding, or renovating real estate reduce their tax liabilities by accelerating depreciation deductions, which allows for the deferral of both federal and state income taxes.

Assisted Living
Assisted living buildings, like medical offices or apartment complexes, are particularly well-suited for cost segregation due to their specialized design and unique features. Elements such as plumbing, rubber flooring, and other infrastructure components can be depreciated more quickly, resulting in substantial tax savings. This approach maximizes financial benefits by recognizing the specific characteristics of the property, ultimately improving the bottom line for developers and owners of assisted living buildings.

Practical Example

This case study highlights how accelerated depreciation can benefit assisted living buildings with specialized infrastructure and amenities. By optimizing depreciation on assets like medical equipment, flooring, and plumbing, owners can reduce taxable income, improve cash flow, and boost long-term profitability.

Building information

○ Building Type 🡪 Assisted Living
○ Property Type: 🡪 Residential
○ Building Size: 🡪 12,888 SF
○ Study Scope: 🡪 Acquisition
○ Condition: 🡪 Good
○ Filling Year: 🡪 2023
○ Date Placed in Service: 🡪 2020
○ Purchase Price less Land or Total Construction Cost: 🡪 $15,000,000
○ Tax Rate: 🡪 30%
○ Return on Investment Factor: 🡪 8%

Summary of Benefits

○ 25% Additional Tax Deductions in First Year: 🡪 $2,002,200

○ RNPV Over Remaining Life of Property: 🡪 $637,141

○ Net Present Value (NPV) Over 10 Years: 🡪 $804,889

Building Allocation After Study

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    5 Year Property

    Depreciable Basis: $2,391,378 at 16%

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    7 Year Property

    Depreciable Basis: $125,862 at 1%

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    15 Year Property

    Depreciable Basis: $1,126,526 at 8%

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    39 Year Property

    Depreciable Basis: $11,356,234 at 76%

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    Total

    Depreciable Basis: $15,000,000 at 100%

Sales Tax Exemptions

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