One such strategy is leasing—and that applies to just about everything a LTPAC facility touches—from office equipment to software, data services, medical/clinical equipment, specialized resident furniture and accessories…even the building(s) in which they operate and the land upon which they sit.
When it comes to leasing, two of the most commonly used types are operating leases and finance leases. With an operating lease, an asset is rented for a set period of time, and each month’s leasing fee is deducted as a regular business expense. It’s important to note that under new the FASB standard (Topic 842), operating leases for private companies that are greater than 12 months (software leases excluded—see more below) will be recorded on the balance sheet beginning in calendar year 2022, and expenses will be treated as interest and amortization.
With a finance lease, the asset is treated for tax purposes as though it has been purchased. Lease payments then are written off as business expenses.
So, could leasing make financial sense for your LTPAC organization? To answer that, let’s look at some of the benefits and costs of purchase/ownership versus leasing.
It’s a difficult question, and the answer depends on several factors. Cash flow is a significant consideration, as is the expected length of use, potential resale value and all the associated tax implications.
In the end, making the right call depends largely on your LTPAC’s financial position, as well as the short- and long-term needs of your resident population. And with any financial decision, it’s important to do your due diligence up front. You’ll want to ensure that whatever assets you utilize (whether purchased or leased) fit your LTPAC facility’s needs, are of high quality, utilize the latest technologies and systems, integrate efficiently into your workflows and represent a sound investment.
Do you have questions about purchasing versus leasing for your long-term post-acute care organization, or other accounting challenges? Call Richter’s healthcare accounting professionals at 866-806-0799 to schedule a free consultation.
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