IRS Publishes Qualified Residential Living Facility Safe Harbor

The Internal Revenue Service this week published a safe harbor for the management or operation of qualified residential living facilities in Revenue Procedure 2021-9.

Trades and businesses managing or operating a residential living facility—as defined in the text of the revenue procedure—can “[treat] it as a real property trade or business, solely for purposes of qualifying to make the election under Internal Revenue Code section 163(j)(7)(B) to be an electing real property trade or business.”  

The residential living facility must meet three criteria to qualify for the safe harbor:

  1. [Consist] of multiple rental dwelling units within one or more buildings or structures that generally serve as primary residences on a permanent or semipermanent basis to individual customers or patients;
  2. [Provide] supplemental assistive, nursing, or other routine medical services; and
  3. [Have] an average period of customer or patient use of individual rental dwelling units of 30 days or more.

To determine the average period of customer or patient use, the IRS says the trade or business will generally need to divide:

  1. the sum of the total number of days in the taxable year that each customer or patient resides in a rental dwelling unit of the residential living facility, which may be determined by reference to a rental contract or other formal written lease agreement, or by the number of days paid for by Medicare or Medicaid;

    by

  2. the total number of individual residential customers or patients that reside in all of the rental dwelling units of the facility for the taxable year.

For the full text of the revenue procedure, check out this page on the IRS website: IRS.gov/pub/irs-drop/rp-21-09.pdf.

Source: Rev Proc 2021-9

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