In December, the Internal Revenue Service issued Revenue Procedure 2021-9, which provides a safe harbor that allows owners or operators of certain senior care facilities (nursing businesses) to elect out of a limitation on the amount of business interest expense that the firm can deduct each year. 

In a blog post Tuesday, one group of legal experts explained that making this election could prove valuable for highly leveraged senior care facility owners or operators. Attorneys Cynthia J. Mitchell, Steven A. Richman and Michael Lobie noted that the new procedure allows a senior care firm that manages or operates a “qualified residential living facility” to treat the facility as an Electing RE Business — or a business that can make an election out of the IRS’ business interest limitation.

The authors note, however, that any firm interested in pursuing this new IRS procedure should consult with tax counsel and accountants to determine whether the benefits outweigh potential decreases in depreciation deductions.

Firms “may apply the rules of the procedure to taxable years beginning after December 31, 2017, so they might also consider whether it would be advantageous to amend prior year tax returns to treat their qualified residential living facility as an Electing RE Business,” the authors wrote.