Using Low-Income Housing Tax Credits When Developing an Assisted Living Facility

Taking advantage of the Low-Income Housing Tax Credit (LIHTC) program can be a complicated process even in most standard cases. Especially in the healthcare space, there are many instances in which facilities or properties may not qualify for LIHTC, including developing hospitals, nursing homes, and senior-care facilities. Combine that with the fact that federal and state regulations are often in conflict, and it makes the process even more challenging.

However, with the right planning and proper legal considerations, in states where it is permitted, LIHTC may be used to develop an assisted living facility. Our team at Buchanan Ingersoll & Rooney has experience helping clients do just that by taking advantage of the credits while staying fully compliant with all regulations from state licensing, Medicaid programs and the Internal Revenue Service (IRS).

Challenges with LIHTC and State Regulations

While there are a number of rules for determining what constitutes low-income housing and who may qualify to use LIHTC, in instances where operators or developers wish to use LIHTC with an assisted living facility, some qualifications and restrictions stand out. Specifically, there are certain restrictions on what services can be offered, what can be included as part of rent, and what must be considered as an optional service. Importantly, since the residential unit may not be considered a healthcare facility to qualify for LIHTC, it cannot include the provision of professional nursing or medical care, except for emergency medical services, such as contacting 9-1-1.

In some states, assisted living facility may be considered a LIHTC qualified residential facility and not a healthcare facility even where it provides common dining, cooking, and recreation areas, as well as some optional services such as: prepared meals, housekeeping, laundry services; assistance with lifestyle activities including bathing and dressing; transportation; assistance with taking of medication; and general supervision. However, Treasury Regulation 1.42-11(b)(2) says that “if continual or frequent nursing, medical or psychiatric services are provided, it is presumed that the services are not optional and the building is ineligible for the credit, as is the case with a hospital, nursing home, sanitarium, life care facility, or intermediate care facility for the mentally or physically handicapped.” This means that, it is critical to be mindful of the services offered when considering using LIHTC with an assisted-living development and whether or how non-residential assisted living services can be provided to residents while still qualifying for the LIHTC program.

There are countless other considerations that must be weighed when attempting to use LIHTC with the development of an assisted living facility. Further, when it comes to what qualifies as an assisted-living facility, each state that allows such a development may have its own unique rules on what must be provided to residents. While some states have little regulation regarding assisted living facilities or regulate these facilities as residential developments, others have regulations that are much stricter, regulating assisted living facilities as health care facilities, with certain rules that must be followed to be considered an assisted living facility in the eyes of Medicaid. This process requires working with experts who know the intricacies of each state’s assisted living regulations and Medicaid rules and can structure the facility and any agreements with residents appropriately.

A Customized Approach to Developing an Assisted Living Facility Using Low-income Housing Tax Credit

Recently, Buchanan worked with a company in New Jersey developing multiple assisted living facilities using the LIHTC program. Buchanan's healthcare regulatory attorneys were engaged to work with the client's LIHTC advisors to reconcile New Jersey's state assisted living regulations with federal LIHTC rules. For example, in New Jersey specifically, Medicaid covers all costs for assisted living services in an assisted living facility. This includes tasks such as assistance with medications, activities of daily living, etc. Medicaid does not, however, cover costs for room and board, which includes both the housing and food components of assisted living. Meanwhile, both LIHTC regulations and New Jersey Medicaid set different limits on costs for rent and/or room and board. In addition, New Jersey assisted living regulations state that food services must be offered to residents at any assisted living facility. However, to qualify for LIHTC, where food is provided to residents, the cost must be included as part of the rent. Yet LIHTC rent is capped below New Jersey Medicaid room and board thereby potentially preventing an assisted living operator from recapturing the costs of providing food to its residents. Buchanan assisted its client in creating a mechanism which satisfies both New Jersey’s regulations and the federal LIHTC requirements including capping the facilities’ rent at LIHTC limit combined with the provision of food service options and reasonable alternatives provided to residents who may wish to prepare their own food such as the provision of kitchenettes in each assisted living unit. The mechanism, allowed the client to provide the services required of an assisted living facility while not surpassing limits set by the IRS for LIHTC.

Finally, to ensure full compliance with LIHTC and regulations regarding assisted living in New Jersey, Buchanan assisted its client in developing a unique two-part lease/admissions agreement specific to a LIHTC assisted living facility in New Jersey.

Working with Experienced Counsel to Use LIHTC with Assisted Living Development

The reality is that the Low-Income Housing Tax Credit was not originally designed to be used with a traditional assisted living facility. A number of mechanisms must be used in order to satisfy all requirements from both the IRS and a state’s assisted living regulations and Medicaid program. Complicating matters further is that each state is different, and it requires deep legal expertise to properly plan and oversee all necessary agreements, services, fees, and restrictions. The healthcare team at Buchanan Ingersoll & Rooney has direct experience working with developers and their LIHTC advisors and counsel across the country to take advantage of LIHTC while remaining compliant with state regulations surrounding assisted living.