Running a senior living facility or skilled nursing facility involves far more than providing quality care. Owners and operators must manage substantial property investments, payroll expenses, staffing challenges, equipment purchases, insurance costs, and complex reimbursement arrangements—all while maintaining compliance with federal and state regulations.
A proactive tax strategy can help your facility manage cash flow, identify legitimate deductions, and plan for future investments. The right approach depends on whether you operate an independent living community, assisted living facility, memory care community, skilled nursing facility, or another type of senior care business.
Here are 15 tax considerations worth reviewing with your accountant.
1. Maximize Depreciation Deductions
Senior living facilities often invest heavily in buildings, renovations, furniture, medical equipment, and other long-lived assets. Depreciation allows a business to recover the tax cost of qualifying tangible property over time.
Depending on the asset and its use, depreciable property may include:
- Buildings and structural components: Building structures and qualifying permanent improvements.
- Furniture and fixtures: Resident beds, dining tables, chairs, and office furnishings.
- Medical and mobility equipment: Wheelchairs, patient lifts, and qualifying durable medical equipment.
- Technology: Computers, networking equipment, and certain security systems.
- Kitchen and laundry equipment: Commercial ovens, refrigerators, washers, and dryers.
- Building improvements: Qualifying electrical, plumbing, accessibility, and other improvements, depending on their nature.
Not every asset is depreciated over the same period. A building generally has a much longer recovery period than qualifying equipment, and land itself is not depreciable. Even items that appear to be minor building fixtures must be classified based on the applicable tax rules rather than automatically assigned a shorter useful life.
A cost segregation study may identify building-related costs that qualify for shorter depreciation periods. This can be particularly valuable following a property acquisition, major renovation, or new construction project.
Review the IRS guidance on depreciation with your tax advisor to determine which assets qualify and how to time deductions.
2. Evaluate Bonus Depreciation and Section 179
Depreciation planning does not stop with the standard recovery period. Two provisions—bonus depreciation and Section 179 expensing—may allow eligible businesses to deduct substantial equipment costs sooner.
Bonus depreciation generally permits a 100% first-year deduction for qualifying property acquired and placed in service after January 19, 2025, under current federal law. Eligibility depends on the type of property, acquisition date, and other requirements.
Section 179 allows businesses to elect to expense qualifying purchases, subject to annual limits, phaseouts, and taxable-income restrictions. For tax years beginning in 2026, the maximum deduction is $2.56 million, reduced when qualifying property placed in service exceeds $4.09 million.
For senior care operators, potentially eligible purchases may include qualifying computers, furniture, equipment, and certain improvements. The rules differ by asset, and buildings do not automatically qualify simply because they are used in a business.
Immediate deductions can reduce current taxable income, but they may not always produce the best long-term result. Consider expected profitability, financing, future expansion, and the potential impact on later-year deductions before making an election.
3. Review Cost Segregation After Acquisitions and Renovations
A cost segregation study examines the components of a building to determine whether certain costs can be classified as property with shorter depreciation periods instead of being depreciated as part of the building.
For a senior living facility, a study may evaluate qualifying equipment, specialized installations, certain electrical systems, and other components. The results depend on the actual property and applicable tax law.
Cost segregation can accelerate deductions and improve near-term cash flow, particularly for owners who have recently purchased or renovated a facility. However, it generally changes the timing of deductions rather than creating an entirely new deduction for the same expense.
Before commissioning a study, discuss its expected tax benefit, cost, documentation requirements, and potential consequences when the property is sold. Your CPA can help determine whether the anticipated benefit justifies the expense.
4. Manage Employee Benefits and Payroll Taxes
Labor is often one of the largest operating expenses for senior living and skilled nursing facilities. Compensation planning should account for both employee retention and the tax treatment of benefits.
Employer-provided health insurance is generally excluded from employees’ taxable income when the applicable requirements are met. Certain other benefits, however, may be taxable or subject to specific limits and reporting rules.
Common areas to review include:
- Employer-sponsored health and dental insurance.
- Retirement plan contributions and matching.
- Qualified education assistance and job-related training.
- Employee meals and lodging, where the specific tax requirements are satisfied.
- Reimbursements for qualifying business expenses under an accountable plan.
There is no general federal “fringe benefits tax” that automatically applies to health insurance premiums above a universal threshold. Instead, each benefit must be evaluated under the rules that apply to it. Taxable fringe benefits generally must be included in wages and may be subject to employment taxes.
5. Deduct Continuing Education and Staff Training
Senior care providers must continually train employees to meet licensing requirements, maintain credentials, and deliver appropriate care. Depending on the circumstances, the cost of qualifying education and training may be deductible as an ordinary and necessary business expense.
Potentially deductible expenses include:
- Required continuing education for nurses and other licensed professionals.
- Job-related training for caregivers and support staff.
- CPR, safety, and emergency-response certification.
- Training on electronic health records and facility management systems.
- Professional conferences and qualifying work-related travel.
Keep invoices, course descriptions, attendance records, and proof of payment. Education expenses are not automatically deductible simply because an employee works in healthcare; the expense must satisfy the applicable business deduction rules.
If your facility reimburses employees for education, establish a consistent written policy and confirm whether the payments qualify for favorable tax treatment.
6. Investigate Available Tax Credits
Tax credits can reduce tax liability directly, making them different from deductions, which generally reduce taxable income. However, credits are available only when a business meets specific eligibility requirements.
Depending on your facility’s activities and workforce, it may be worth evaluating:
- Research credit: Potentially available for qualifying research activities, including certain eligible software development or process improvements. Routine administrative work and ordinary technology purchases do not automatically qualify.
- Work Opportunity Tax Credit: Historically available to employers hiring workers from certain targeted groups, subject to eligibility and certification requirements. Its availability depends on current law and the relevant hiring date.
- Disabled Access Credit: Certain eligible small businesses may qualify for a credit for eligible expenses incurred to improve accessibility.
- Energy-related incentives: Certain qualifying energy projects may be eligible for deductions or credits, subject to the current rules and deadlines.
Senior living operators should not assume that a particular incentive applies simply because their business serves older adults or people with disabilities. Review the facility’s ownership structure, project details, employee eligibility, and applicable deadlines with a tax professional before including a credit in financial projections.
7. Understand Medicare and Medicaid Reimbursement
Facilities participating in Medicare or Medicaid must pay close attention to reimbursement rules, documentation, and reporting obligations. These programs can significantly affect revenue, but reimbursement compliance and income tax treatment are separate issues.
Depending on the provider and program, operators may need to prepare cost reports, maintain supporting records, reconcile payments, and address adjustments or recoupments.
From a tax-planning perspective, important questions include:
- When should reimbursement revenue be recognized under the facility’s accounting method?
- How should retroactive adjustments, denials, and repayment obligations be recorded?
- Are reserves for disputed payments supported and treated correctly?
- Do year-end financial statements reconcile to the underlying billing and reimbursement records?
Medicare and Medicaid payments are not automatically tax-free simply because they come from government programs. The tax treatment depends on the nature of the payment and the facility’s circumstances.
The federal Provider Relief Fund, established during the COVID-19 pandemic, is another historical consideration. Although its original distribution program has concluded, facilities that received payments may still need to address applicable reporting, recordkeeping, audit, or repayment matters.
8. Track Ordinary and Necessary Operating Expenses
Daily operating expenses can add up quickly. Maintaining accurate records helps ensure that eligible costs are deducted in the appropriate tax year.
Common expenses to review include:
- Resident-care supplies and personal protective equipment.
- Cleaning, sanitation, and laundry services.
- Food and kitchen supplies.
- Utilities, repairs, and routine maintenance.
- Insurance, licenses, and professional fees.
- Accounting, legal, and consulting services.
- Software subscriptions and administrative technology.
- Advertising, recruitment, and employee onboarding costs.
The distinction between a deductible repair and a capital improvement is especially important. Routine work that maintains property may be deductible, while an improvement that betters, restores, or adapts property to a new use may need to be capitalized and recovered over time.
Create consistent expense categories and retain invoices, contracts, and payment records. Clear bookkeeping makes it easier to substantiate deductions and spot unusual spending before tax filing deadlines.
9. Evaluate Net Operating Losses
A net operating loss (NOL) may arise when a business’s allowable tax deductions exceed its income under the applicable rules. For a senior care operator dealing with construction costs, staffing pressures, or a difficult operating year, an NOL may help reduce taxes in a later profitable year.
For most NOLs arising in tax years beginning after 2020, the general federal rule is to carry the loss forward rather than backward, with an exception for certain farming losses. The deduction for post-2017 NOLs is generally limited to 80% of taxable income, calculated under the statutory rules.
The precise treatment depends on the entity type, the year the loss arose, and any applicable exceptions. Owners of pass-through businesses may also face limitations involving basis, at-risk rules, passive activities, and excess business losses.
Keep records of loss carryforwards and review them annually. A CPA can help verify available NOLs, determine when they can be used, and incorporate them into future tax projections.
10. Make Charitable Contributions Strategically
Senior living communities often support local nonprofits, veterans’ organizations, food banks, and other community initiatives. Charitable giving can be an important part of a facility’s mission, but its tax treatment depends on how the contribution is structured and the business’s legal status.
For a taxable business, a qualifying contribution to an eligible charitable organization may be deductible under the rules applicable to its entity type. The deduction is not automatic for every donation or community activity.
Consider these distinctions:
- Cash or property donated to a qualified charitable organization may qualify, subject to applicable limits and substantiation requirements.
- Donations of equipment or supplies require appropriate valuation and documentation.
- The value of employees’ or owners’ time generally is not deductible as a charitable contribution.
- Sponsorships that provide advertising or another business benefit may be treated differently from charitable gifts.
- Contributions to a specific individual generally do not qualify as deductible charitable contributions.
If the facility itself is a tax-exempt nonprofit, different rules apply. Donations received, fundraising activities, unrelated business income, and the organization’s exempt purpose may all require separate consideration.
11. Separate Repairs, Improvements, and Renovation Costs
Senior living properties require ongoing maintenance, and larger projects may involve significant expenditures. Correctly distinguishing repairs from improvements can materially affect the timing of deductions.
Routine maintenance—such as fixing a leaking faucet or repairing a damaged section of flooring—may qualify as a current expense, depending on the facts. Projects that substantially improve a building, restore a major component, or adapt property to a new use may need to be capitalized.
For example, replacing a single broken fixture may receive different treatment from a comprehensive renovation of an entire building system. Accessibility modifications, resident-room upgrades, fire-safety projects, and major HVAC work should be reviewed individually.
Maintain project-level records that identify the work performed, materials purchased, contractor invoices, and date the property was placed in service. For large projects, ask your CPA to review the costs before they are finalized in the accounting system.
12. Review Interest Expense and Financing Costs
Senior living facilities may carry substantial debt related to real estate acquisitions, construction, renovations, or equipment purchases. Interest and financing costs can have different tax treatments depending on what the borrowing funded and the business’s circumstances.
Interest on qualifying business debt may be deductible, but the deduction can be limited under federal business-interest rules. Certain businesses may qualify for exceptions, depending on factors such as gross receipts, entity structure, and the nature of the business.
Construction-period interest and other costs associated with producing or improving property may also require capitalization rather than an immediate deduction.
Review loan agreements, lender statements, refinancing costs, and construction financing with your CPA. If your facility is expanding or refinancing existing debt, model the tax consequences alongside the interest rate, repayment schedule, and expected cash flow.
13. Consider the Tax Treatment of Resident Revenue and Deposits
Senior living operators may receive monthly service fees, entrance fees, deposits, community fees, and payments for additional care services. These amounts should be tracked separately because their accounting and tax treatment may differ.
A refundable resident deposit, for example, is not necessarily treated the same way as a nonrefundable fee earned for services. Similarly, an entrance fee paid under a long-term residency agreement may have specific recognition rules depending on the contract and applicable tax law.
Review resident agreements to understand:
- Which amounts are refundable and under what circumstances.
- Whether fees relate to future services.
- How refunds, credits, and disputed balances are handled.
- Whether the tax treatment differs from the financial-statement treatment.
Accurate revenue recognition helps prevent year-end surprises and improves the reliability of operating forecasts. Your CPA should review material fee arrangements before they are introduced or significantly revised.
14. Review Property and Energy-Related Tax Opportunities
Major energy upgrades can reduce operating costs, particularly in facilities with significant heating, cooling, lighting, and hot-water demands. Potential projects include efficient HVAC systems, improved insulation, building controls, and lighting upgrades.
Some projects may qualify for federal deductions or other incentives, but eligibility depends on the property’s characteristics, the specific improvement, ownership arrangements, and current law. Incentive availability and deadlines can change, so do not assume a project qualifies based on an older article or contractor estimate.
Property owners should also review real estate tax assessments, where applicable. If the assessed value does not accurately reflect the property or its relevant market conditions, an appeal may be worth evaluating under local procedures.
Before beginning a major project, compare the expected energy savings, financing costs, depreciation treatment, and any potentially available incentives. Confirm eligibility before including a tax benefit in the project’s return-on-investment calculation.
15. Build a Year-Round Tax Planning Process
Tax planning works best when it is part of regular financial management rather than a once-a-year exercise. Senior care operators face changing staffing needs, reimbursement rates, property expenses, and capital investment requirements, all of which can affect taxable income and cash flow.
A useful planning process should include:
- Monthly financial reviews: Reconcile bank accounts, payroll, resident revenue, accounts receivable, and major expenses.
- Quarterly tax projections: Estimate annual taxable income and review required federal and state tax payments.
- Capital expenditure planning: Review equipment purchases, renovations, and property projects before year-end.
- Payroll and benefit reviews: Confirm employment tax compliance and appropriate benefit reporting.
- Annual entity and ownership reviews: Evaluate whether the current legal and tax structure still fits the business.
- Document retention: Maintain organized records supporting deductions, credits, reimbursement adjustments, and asset purchases.
Tax rules and incentives change, and the best strategy for one facility may not work for another. A year-round relationship with a CPA can help you make informed decisions before transactions occur instead of trying to reconstruct the details after the fact.
Work With a CPA Who Understands Healthcare Businesses
Senior living and skilled nursing facilities operate in a complex financial environment. Depreciation, payroll, resident revenue, reimbursement arrangements, capital improvements, and business losses can all affect the tax picture.
Huddleston Tax CPAs helps businesses navigate tax preparation, planning, accounting, and financial reporting. If you operate a senior living community or healthcare facility, working with an experienced tax professional can help you evaluate your options, maintain accurate records, and make more informed financial decisions.