Medical Office Cost Segregation Case Study

Study Overview

In this case study done for tax year 2021, the medical office building had a total cost of $1,875,000, not including land. Through cost segregation analysis, the owner was able to reclassify 27% of the total costs to either 5 or 7 year property and 13% of the total costs to 15 year property.

This resulted in a Net Present Value After Tax Benefit of over $152,000. The additional depreciation in the first year of the study was approximately $731,500.

Qualified Property

Medical offices can be great candidates for a cost segregation study. Most medical offices will include extensive amounts of cabinetry and countertops in the patient rooms, procedure rooms, storage areas and front reception/lobby area. Most medical offices will also include a high percentage of dedicated electrical and plumbing work supplying both the medical and office equipment. Dedicated plumbing to medical equipment will include but not be limited to water lines, gas lines and compressed air lines. Medical offices quite often will include complex data/communications systems, intercom systems, and sound/video systems, which all will qualify for accelerated depreciation. A large benefit can also be obtained from certain millwork/woodwork, decorative lighting, floor coverings and wall coverings. Outside of the medical office, the owner(s) will benefit from accelerated depreciation relating to certain excavation work, storm water systems, asphalt, concrete curbs and sidewalks, fencing and landscaping & irrigation.