The IRS has provided a safe harbor that could allow some skilled nursing facilities to deduct interest expense without regard to limitations of the Tax Cuts and Jobs Act (i.e. no 30% of EBITDA limitation on interest expense). This applies to facilities that provide supplemental assistive, nursing, or other routine medical services, have an average period of patient use of the dwelling units of 30 days or more, and serve as the primary residence of the patient on a permanent or semi-permanent basis.

On Dec. 29, the IRS and Treasury released Rev. Proc. 2021-09, 2021-3 IRB 1, allowing a business that manages or operates a qualified residential living facility to be treated as an electing real property trade or business that can opt-out of the business interest deduction limits under section 163(j).

“Supplemental assistive, nursing, or other routine medical services” are personal and professional services that are customarily and routinely provided to individual residential customers or patients of nursing homes, assisted living facilities, memory care residences, continuing care retirement communities, skilled nursing facilities, or similar facilities, as needed, on a day-to-day basis.

This revenue procedure applies to taxpayers who also provide supplemental assistive, nursing, or other routine medical services as part of their normal business activity. If you have a Property Company/Operating Company setup of your organization, this safe harbor may not apply to you. This revenue procedure is applicable to tax years beginning on or after Jan. 1, 2018. Therefore, it could add dollars back to your facility’s bottom line. Contact your LBMC tax engagement partner to ensure we take advantage of this newly released opportunity. If you have questions, please contact your tax advisor or contact us.

LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.