Maximizing the profit of senior housing investments can be a complex process. It requires a great deal of research, planning, collaboration and knowledge to ensure that your senior housing investment yields the results and profits you desire. While the senior housing industry continues to boom, many investors, new and old, may not be maximizing their proceeds and opportunities. The 1031 tax deferred exchange is one of the vehicles that can help owners save on taxes when selling their senior living property investments.
Qualify for Tax Exemption
The 1031 tax exchange allows a property owner to sell their real estate asset and acquire a new like-kind asset while deferring the capital gains tax. (Read How To Calculate Senior Housing Investment, click here)
For example, if you list your assisted living facility for sale at a sales price of $10 million, find a buyer and close the deal, you can buy healthcare properties at the same valuation without paying any capital gains tax. It is essentially a tax-free transfer of value.
When making this new senior housing investment, you are free to bring in outside equity. However, the total real estate value must be transferred under the 1031 exchange guidelines. This means that all $10 million or more must be transferred into a new income-producing asset or you will pay capital gains on any amount not exchanged. There is also no debt forgiveness, meaning, if you have $6 million in debt on the $10 million deal, you must have $6 million in debt on the new acquisition.
Rules of the 1031 Exchange
There are actually two sales that occur during the 1031 exchange. The down leg refers to the initial housing investment property being sold in the exchange. The up leg is the second asset bought of equal or greater value.
Fortunately, the 1031 exchange applies to almost all real estate in the senior housing industry. This includes skilled nursing facilities for sale, Assisted Living, Stand-alone Memory Care, Independent Living, CCRCs’ and any other senior housing properties that have a real estate component.
Under the 1031 exchange, property owners typically take between 100 and 120 days to find a buyer for their senior housing facilities for sale. Once the transaction closes, owners have a total of 180 days to acquire a new like-kind asset. This gives investors almost a year to complete the entire process and honor the 1031 exchange timeline.
Because of these times constraints, buyers in a 1031 exchange gain preferential treatment from sellers because they have a strong incentive to close and have the funds to do so. However, falling outside these parameters will nullify tax exemption. The sale then becomes subject to normal capital gains taxation. For this reason, it is recommended that those particularly unfamiliar with the 1031 exchange consult a senior housing brokerage, like JCH Consulting Group.
Minimize your tax exposure with the Top Senior Housing Brokerage
The 1031 exchange is a phenomenal tool that helps operators and property owners make the most out of their senior living investments. Those who are deeply involved in the senior housing industry that have not yet implemented the 1031 exchange can experience a huge surge in savings from exempted taxes alone.
The investments specialists at the JCH Group are prepared to help you use the 1031 exchange to your benefit. Our extended experience and intelligence makes us the choice senior housing brokerage that handles each aspect of the transaction with expertise. If you are listing your assisted living facility for sale and would like a free business valuation, contact one of our experts for assistance.