Senior Living Facilities Financed as Qualified Residential Rental Facilities Senior Living Facilities Financed as Qualified Residential Rental Facilities

Senior Living Facilities Financed as Qualified Residential Rental Facilities

In recent years, there has been an increase in not only the number of senior living facilities but also the number of senior living facilities financed through the issuance of tax-exempt bonds pursuant to Section 142(d) of the Internal Revenue Code of 1986, as amended (the “Code”). Section 142(d) of the Code permits tax-exempt financing for “qualified residential rental projects.” Many developers have utilized this method of financing for senior living projects for several reasons, including: (1) potentially lower borrowing rates; (2) the ability to lock in a fixed rate over a 30 year or more term; and (3) the ability to realize equity contributions through the award of low income housing tax credits. In addition, in most states, Medicare reimbursements can be used as a source of payment of debt service on these bonds. In order to qualify as a “qualified residential rental project,” a facility must have the following characteristics: 
 
  • For a period of at least 15 years, the developer must elect to set aside either (1) 20% of the units in the project to be made available to individuals with incomes of 50% or less of area median income or (2) 40% of the units in the project to be made available to individuals with incomes of 60% or less of area median income;
  • The units must consist of complete facilities for living, sleeping, eating and sanitation; and
  • The units must not be used on a “transient” basis. 
Meeting the qualified residential rental project requirements is easier than one might think for senior living facilities as the primary test is an income test and not an asset test. In addition to the above requirements, the project must not contain continuous or frequent medical, nursing, psychological or emotional care. As such, activities such as assistance with daily living activities do not disqualify a facility from benefitting from tax-exempt financing. Examples of these activities include: medication reminders, flat linen services, consultation with nurses regarding health concerns and meal preparation. Further, if low-income housing tax credits are awarded to a project, the affordable units in the project must have rents (which cannot include supportive service charges) that do not exceed 30% of either 50% or 60% of area median gross income and supportive services must be itemized rather than included in rents. 
 
For more information, please contact Michael Allen, Philip Genetos, Tyler Kalachnik, James Snyder, Kip Wahlers and Steven Washington or another member of the Ice Miller Municipal Finance Group.
 
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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