How is capital gains tax calculated when I sell my assisted living facility?
Direct answer
Your gain is roughly the sale price minus your adjusted basis, but a community sale is split into parts. Gain on the real estate can be deferred with a 1031 exchange. Gain on the business and the furniture and equipment is taxable in the year of sale, and depreciation recapture on equipment is taxed as ordinary income.
What to know
The purchase price allocation, reported on IRS Form 8594, divides the price among the real estate, the FF&E and the business or goodwill. Each piece is taxed differently. The real estate gain is the part a 1031 exchange can defer. The business and FF&E pieces cannot be deferred and are taxed in the year of sale.
Your basis, the allocation and your depreciation history all change the result, and rates depend on your situation. This is a calculation to run with your CPA before you sign a purchase agreement, not after.
This is general information, not tax, legal or investment advice. Talk to your CPA and attorney about your situation.
How Haven helps
Haven's brokers structure community sales with the allocation conversation up front, working alongside your CPA and attorney. Read our 1031 exchange guide for senior housing.