SECTION 4. RESIDENTIAL LIVING

FACILITY SAFE HARBOR

.01 Safe harbor for residential living facility trades or businesses . A taxpayer engaged in a trade or business that manages or operates a qualified residential living facility, as defined in section 3.01 of this revenue procedure, may treat such trade or business as a real property trade or business solely for purposes of the election under section 163(j)(7)(B) to be an electing real property trade or business. Satisfying the requirements of this safe harbor is not a determination that the taxpayer is en

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gaged in a real property trade or business under section 469.

.02 Effect of election and how to make the election . If a taxpayer relies on this safe harbor in section 4.01 this revenue procedure to make the election under section 163(j)(7) (B) to be an electing real property trade or business, the provisions in § 1.163(j)-9 apply, and the taxpayer must use the alternative depreciation system of section 168(g) to depreciate the property described in section 168(g)(8). The taxpayer makes the election under section 163(j)(7)(B) at the time, and in the manner prescribed by § 1.163(j)-9(d). See also Rev. Proc. 2020-22.

.03 Substantiation . A trade or business that manages or operates a residential living facility to which this revenue procedure applies must retain books and records to substantiate that all the requirements of this section 4 have been met in accordance with section 6001.

.04 Annual test; reinstated election . For any taxable year, subsequent to the taxable year in which a taxpayer relies on the safe harbor in section 4.01 of this revenue procedure to make the election under section 163(j)(7)(B) to be treated as a real property trade or business, in which a taxpayer does not satisfy the requirements in section 3.01 of this revenue procedure, the taxpayer is deemed to have ceased to engage in the electing trade or business, as provided in § 1.163(j)-9(e) for such subsequent taxable year. For any subsequent taxable year in which a taxpayer satisfies the requirements in section 3.01 of this revenue procedure after a deemed cessation of the electing trade or business, the taxpayer’s initial election under section 163(j)(7)(B) will be automatically reinstated.

.05 Anti-abuse . Taxpayers are not eligible to rely on the safe harbor in this revenue procedure if a principal purpose of an arrangement or transaction is to avoid section 163(j) and its regulations

and in a manner that is contrary to the purpose of this revenue procedure. See § 1.163(j)-2(j).