A 6,000 square foot dental practice and a 6,000 square foot insurance agency cost nearly the same per foot to build and land in completely different places on a depreciation schedule. Your building routinely reclassifies 30% to 45% of depreciable basis; the insurance office often struggles past 15%. The difference is everything your practice required the shell to do.
The short answer
- Medical and dental buildings typically reclassify 30% to 45% of depreciable basis, against 20% to 30% for a standard commercial building, because clinical requirements push dedicated plumbing, gas, electrical, and casework into nearly every room.
- The value concentrates in equipment-serving systems: operatory casework and plumbing, central vacuum and compressed air, sterilization, and the feeders serving imaging.
- If you own the building in an LLC and lease it to your own practice, Treas. Reg. §1.469-2(f)(6) applies. The self-rental rule makes net rental income non-passive while leaving losses passive. A grouping election under Treas. Reg. §1.469-4 is the planning response, and it belongs to your CPA.
- Your site package still carries weight: parking, drives, lighting, landscaping, and signage are 15-year land improvements, commonly 8% to 12% of basis.
Why Clinical Space Outruns a Generic Office
A general office building distributes services to a floor. Yours distributes them to a room, and often to one device inside that room: every operatory needs water, waste, suction, air, and power at the chair.
That density is what an engineer measures. Branch plumbing, cabling, and circuits that exist only because a specific device sits in a specific spot follow the equipment, not the building. Cabinetry, dedicated electrical, decorative lighting, carpeting, and communication systems fall into 5-year property; paving, site utilities, landscaping, and signage into 15-year land improvements. See our breakdown of the 5-, 7-, and 15-year buckets.
What an Engineer Looks For in Your Dental Build-Out
At the operatory. Chair and delivery rough-ins, casework and rear cabinets, the water and waste line to each chair, the suction line back to the vacuum pump, the air drop, the nitrous line, the circuits at the chair, and the operatory light. A twelve-chair practice repeats that twelve times.
In the mechanical room. The central vacuum pump and air compressor, plus the piping distributing both through the building. That piping is the most overlooked opportunity in a dental study: it looks like plumbing on a drawing and functions as an equipment utility.
In sterilization and the lab. Casework and counters, ultrasonic and autoclave rough-ins, dedicated water treatment, lab sinks, plaster traps, and model trimmer connections, plus panoramic and cone beam rooms with their high-amperage circuits.
Imaging Is Where the Switchgear Allocation Pays
Multi-specialty and physician buildings shift the emphasis, not the logic. Exam millwork and specialty lighting separate from ambient lighting, nurse call reads as communication equipment, and HVAC serving procedure and lab space is examined apart from the units conditioning your waiting room.
Imaging is the outlier. A CT, fluoroscopy, or MRI suite pulls a disproportionate share of your electrical load, and the February 2025 revision of the IRS Cost Segregation Audit Techniques Guide added guidance allocating primary switchgear based on electrical load. Where imaging drives 40% of connected load, that moves a meaningful slice of the main gear and feeders out of the 39-year structure.
Lead-lined wall and door assemblies remain a judgment call, and a defensible study documents its reasoning rather than assuming the favorable answer.
A $2,800,000 Practice Building, Worked
Example: a $2,800,000 dental and medical office building placed in service in January 2026 Land allocated at $450,000, leaving $2,350,000 of depreciable basis. Acquired and placed in service after January 19, 2025, so 100% bonus depreciation applies under §168(k).
| Class | Share of basis | Amount | Representative assets |
|---|---|---|---|
| 5-year | 24% | $564,000 | Casework, equipment circuits, vacuum and air piping, nurse call, flooring |
| 7-year | 2% | $47,000 | Certain fixtures and equipment |
| 15-year land improvements | 10% | $235,000 | Parking, curbs, site utilities, lighting, sign |
| 39-year structure | 64% | $1,504,000 | Shell, roof, general MEP |
| Reclassified | 36% | $846,000 |
At 100% bonus, that $846,000 comes into year one. Without the study it would have sat in the 39-year structure and thrown off about $20,800 in 2026, at the MACRS mid-month factor of 2.461% for a January placed-in-service date. So the incremental first-year deduction is roughly $825,000, worth about $288,800 at a combined 35% rate, against a fee in the $5,000 to $15,000 commercial range. Multiplying the full $846,000 by 35% overstates the benefit by depreciation you were already entitled to take.
The Self-Rental Rule Is the Trap in This Asset Class
Almost every practice owner uses the same structure: an LLC owns the building, the practice entity leases it, and you own both. Good asset protection, ordinary planning, and it triggers Treas. Reg. §1.469-2(f)(6).
The rule says net rental income from property leased to a business in which you materially participate becomes non-passive. Most owners conclude the rental is therefore non-passive, so a large first-year loss will offset practice income. That is the mistake. The recharacterization runs one direction only: income becomes non-passive, losses remain passive and stay suspended under §469 until you have passive income or dispose of the activity.
So a study generating an $846,000 deduction against a rental with $180,000 of rent produces a large suspended loss and no current cash benefit, while every future profitable year of that rental throws off non-passive income the suspended loss cannot absorb.
The response is a grouping election under Treas. Reg. §1.469-4, treating rental and practice as one activity in which you materially participate. Done correctly, the loss is no longer trapped. Done casually, it creates problems on disposition and is hard to unwind. See our guide to the passive activity loss rules.
Fix the Structure Before You Order the Study
If you lease your space rather than own it, the improvements you paid for may still qualify, but the question is who owns and depreciates them under the lease. Tenant-funded interior work in a nonresidential building generally falls under qualified improvement property at a 15-year life, and a landlord allowance changes the answer entirely. See renovations and tenant improvements for that fork.
Below roughly $500,000 of depreciable basis, a study usually cannot pay for itself. If you plan to sell within a few years, your short-life assets are §1245 property, and gain up to the depreciation taken returns as ordinary income at up to 37%. And if the self-rental issue is unresolved with no grouping election available, fix the structure first and order the study second. Whether the math works for you is the subject of is cost segregation worth it.
Frequently Asked Questions
Does my dental equipment need to be in the study?
Not usually. Chairs, compressors, autoclaves, and imaging units you bought directly are already on your practice's depreciation schedule. The study addresses what is embedded in the building basis: the piping, casework, rough-ins, and dedicated electrical serving that equipment, which otherwise sits inside a 39-year figure.
I bought my building in 2019. Is it too late?
No. A study can be performed on property placed in service in any prior year, with the catch-up taken through Form 3115 and a §481(a) adjustment rather than amended returns. The bonus percentage is fixed by the original placed-in-service date, so a 2019 building carries 2019 rules.
Will a study create a problem if I later sell the practice and the building together?
It changes the character of some gain, not the fact of it. Reclassified personal property is §1245 property, recaptured as ordinary income to the extent of depreciation taken. The structure is §1250 property, with unrecaptured gain taxed at a maximum 25%. A §1031 exchange defers it; a §1014 step-up eliminates it for heirs.
Can I do this if I lease the building from an unrelated landlord?
Sometimes. If you funded the build-out and own the improvements under your lease, that basis is yours to analyze. If the landlord funded it through an allowance and owns the result, it is the landlord's asset. The lease controls, so read it before committing to a study.
Find Out in 24 Hours Whether a Study Pays for Itself
Not every property justifies a study, and we will tell you when yours doesn't. Send Precision Cost Segregation the address, purchase price, closing date, and your rough tax rate, and we will come back with a modeled reclassification range and an estimated first-year benefit at no cost.
This article is provided by Precision Cost Segregation for general educational purposes and does not constitute tax, legal, or accounting advice. Tax outcomes depend on your specific facts, your tax rate, your passive activity position, and your entity structure. Figures shown are illustrative. Consult your CPA or tax advisor before acting, and engage a qualified professional to perform any cost segregation study. Information is current as of publication.
This article is general information, not tax or legal advice. Depreciation outcomes depend on your facts, elections, and current law — consult your CPA before acting. © 2026 Precision Cost Segregation.