Dental Financial Advisory / Industry hub
Cost Segregation for Dental Office Buildings
Cost segregation for a dental building can reclassify portions of the construction or purchase cost from 39-year property into shorter recovery periods, potentially accelerating depreciation on qualifying improvements such as specialized plumbing, electrical and build-out components. Eligibility and benefit depend on the property's basis, its placed-in-service date and an engineering-based study, subject to applicable tax law.
What in a dental office can be reclassified?
Build-out components that serve the practice rather than the building shell: specialized plumbing and electrical for operatories, casework, tile and finish work that is functionally personal property, and other components an engineer can support with shorter lives.
Equipment itself already depreciates over its own scheduled lives; cost segregation works on the building and improvements around it.
How does a dental building study work?
An engineering-based analysis of the construction documents and the property classifies components by function and assigns recovery periods, then computes the resulting depreciation, including any catch-up through a change in accounting method where applicable.
The study is only as good as its documentation, which is why qualified engineering analysis is the standard rather than an estimate.
When in the building's life is a study most valuable?
For a new build or a recent purchase, the classification can be set up cleanly from the start and interacts with whatever depreciation provisions current law provides. For an older building, a study can still add value subject to the change-in-method rules.
A dentist building or buying practice real estate should raise cost segregation during acquisition planning, when the structure of the purchase is being decided.
For practice real estate, cost segregation accelerates allowable depreciation on the build-out, and the value is highest when planned with the purchase.
For practice owners
How financially intelligent is your practice?
The Pagac Financial Intelligence Assessment helps dentists see where their practice stands across structure, taxes, profitability, real estate and retirement.