A 20% business income tax deduction under the 2017 Tax Cuts and Jobs Act could be awaiting some assisted living communities, according to final regulations issued by the federal government on Friday. Skilled nursing facilities, however, appear to be ineligible.
The Treasury Department and the Internal Revenue Service also issued three pieces of guidance related to the new qualified business income deduction, also known as the Section 199A deduction, meant for owners of “pass-through” entities such as limited liability companies, partnerships, S corporations and sole proprietorships. Eligible taxpayers will be able to claim the deduction for the first time on their 2018 Form 1040.
The Tax Cuts and Jobs Act, signed by President Trump in December, lowers the corporate tax rate to 21% and permits some businesses — but not those engaged in a “specified service trade or business” — to take a flat deduction equal to 20% of their qualified business income. The American Health Care Association / National Center for Assisted Living previously had asked the Treasury Department to rule that assisted living communities and skilled nursing facilities “are not engaged in a [‘specified service trade or business’] within the meaning of IRC 199A.”
Under the rule proposed in August, it appeared that some assisted living communities might be able to take advantage of the 20% deduction but that the deduction could elude skilled nursing facilities, according to AHCA / NCAL’s interpretation. That is the case under the final rule as well.
AHCA / NCAL, however, said that its comments to the IRS resulted in wording being added to the final regulations that describe an example of an “operator of a residential facility that provides a variety of services to senior citizens who reside on campus” to explain a type of business that could qualify for the 20% deduction.
The complete text:
“X is the operator of a residential facility that provides a variety of services to senior citizens who reside on campus. For residents, X offers standard domestic services including housing management and maintenance, meals, laundry, entertainment, and other similar services. In addition, X contracts with local professional healthcare organizations to offer residents a range of medical and health services provided at the facility, including skilled nursing care, physical and occupational therapy, speech-language pathology services, medical social services, medications, medical supplies and equipment used in the facility, ambulance transportation to the nearest supplier of needed services, and dietary counseling. X receives all of its income from residents for the costs associated with residing at the facility. Any health and medical services are billed directly by the healthcare providers to the senior citizens for those professional healthcare services even though those services are provided at the facility. X does not perform services in the field of health within the meaning of section 199A(d)(2) and paragraphs (b)(1)(i) and (b)(2)(ii) of this section.”
“While this final rule offers some positive news for assisted living providers that contract out any healthcare services, the rule is still somewhat disappointing,” NCAL Executive Director Scott Tittle told McKnight’s Senior Living. “Without an across-the-board definition, the rule brings more uncertainty than clarity. AHCA / NCAL will continue to seek a solution so that all of long-term can qualify for this important tax cut.”
For more information about the deduction, see the version of the final rule that the IRS has posted on its website.