Medical Office Buildings: Recover $400K-$2M+ Through Cost Segregation

Absolutely! Cost segregation can be applied retroactively to medical office buildings acquired in prior years. Using Form 3115 (Change in Accounting Method), you can claim all missed depreciation from prior years in the current tax year without amending returns. Medical buildings purchased within the last 5-7 years are excellent candidates, especially those with specialized medical infrastructure.

Medical office buildings have significantly higher reclassification potential (typically 25-35% vs. 15-20% for regular offices) due to specialized medical infrastructure. Medical gas systems, isolated power systems, specialized HVAC with pressurization and filtration, medical-grade plumbing, built-in medical equipment, casework, technology infrastructure (PACS, telemedicine), and healthcare compliance features all qualify for accelerated depreciation. A typical medical building has 50-70% more reclassifiable assets than standard office space.

Yes! If you're a medical practice that built out leased space, all tenant improvements you paid for qualify for cost segregation. This includes medical gas installations, specialized electrical and HVAC, exam room millwork and casework, medical sinks and fixtures, built-in equipment, technology infrastructure, and compliance features. Qualified Leasehold Improvements offer even faster depreciation schedules, making cost segregation particularly beneficial for medical tenants.

Absolutely—ASCs are among the best candidates for cost segregation due to extensive specialized infrastructure. Operating room medical gas systems, specialized surgical HVAC with HEPA filtration, isolated power systems, emergency generators, surgical lighting, sterilization equipment connections, surgical casework and storage, clean rooms, and recovery room infrastructure all qualify. ASCs typically see 30-40% reclassification rates, often higher than standard medical offices due to the complexity of surgical facilities.

While the imaging equipment itself (MRI machines, CT scanners, etc.) is already depreciated as equipment, the specialized infrastructure supporting that equipment qualifies for cost segregation. This includes radiation shielding, RF shielding for MRI rooms, specialized HVAC for equipment cooling, isolated power systems, equipment foundations and mounting systems, PACS networking infrastructure, lead-lined walls and doors, and control room build-outs. These supporting systems often represent 25-35% of the total facility investment and can be accelerated through cost segregation.

Yes! These strategies are highly complementary. 179D provides immediate deductions for energy-efficient HVAC, lighting, or building envelope improvements (up to $5.00 per square foot), while cost segregation accelerates depreciation on all qualifying medical assets. A 20,000 SF medical building could claim $100,000 from 179D plus $400,000-$800,000 from cost segregation, providing substantial combined tax benefits. Many medical facilities qualify for both due to modern energy-efficient systems required for healthcare operations.

Yes! Healthcare compliance features are excellent cost segregation opportunities. HIPAA-required features like privacy-rated partitions, soundproofing, secure access control, security cameras, and encrypted networking infrastructure all qualify. ADA-compliant features including accessible exam rooms, height-adjustable fixtures, accessible restrooms, automatic doors, and tactile wayfinding systems also qualify. These compliance investments, often 5-10% of total project costs, can be reclassified to shorter depreciation schedules, providing immediate tax benefits from regulatory requirements.

Studies for medical office buildings typically range from $8,000-$20,000 depending on facility size, complexity, and value. A 10,000 SF medical office would generally cost $8,000-$12,000, while a 30,000 SF multi-specialty clinic or ASC would be $15,000-$20,000. With typical first-year deductions of $400K-$1.5M for medical facilities, the ROI is typically 20:1 to 50:1 in year one alone. The specialized medical infrastructure in healthcare facilities provides substantial reclassification opportunities that far exceed the study cost.

No. Cost segregation is an IRS-approved tax strategy supported by decades of Tax Court precedent. Medical office buildings are actually one of the most common and accepted property types for cost segregation due to the extensive specialized infrastructure. Our engineering-based studies follow IRS guidelines (Rev. Proc. 2011-14) and Hospital Audit Techniques Guide standards, providing comprehensive documentation that satisfies audit requirements. The detailed engineering analysis actually reduces audit risk by demonstrating proper asset classification.

Medical equipment itself (diagnostic machines, surgical equipment, exam tables, etc.) is already depreciated as equipment under MACRS. However, cost segregation focuses on the built-in infrastructure supporting that equipment: medical gas distribution, specialized electrical and HVAC, equipment mounting systems, shielding, casework, and technology infrastructure. These building components are typically depreciated over 39 years with the building but can be accelerated to 5-15 years through cost segregation, providing benefits beyond equipment depreciation.

Yes! Dental offices are excellent candidates for cost segregation. Specialized dental infrastructure includes nitrous oxide and oxygen gas piping, dental vacuum systems, specialized plumbing for high-volume evacuation, dental operatory casework and cabinetry, dental chair mounting and electrical, sterilization room equipment connections, digital x-ray infrastructure, and specialized lighting. Dental offices typically see 25-30% reclassification rates. A $1.5M dental office buildout can generate $375K-$450K in accelerated depreciation, providing $130K-$160K in first-year tax savings.

Yes! Cost segregation is still beneficial even with planned disposition. The accelerated depreciation provides immediate tax savings and cash flow now. When you sell, depreciation recapture rules apply to the same amount regardless of whether you used cost segregation or not—you're simply recognizing the deduction sooner. Many medical property investors use cost segregation specifically before a 1031 exchange to maximize pre-sale tax benefits while deferring capital gains through the exchange.

Perfect timing! Cost segregation on your current facility provides immediate tax savings to help fund future renovations. When you complete the future renovation, you can do another cost segregation study on the improvement costs. Additionally, properly identifying assets now allows you to dispose of replaced components during renovation, generating an immediate tax deduction for retired assets while accelerating depreciation on new improvements. This strategic approach maximizes tax benefits across both the current and future projects.

Absolutely! Urgent care facilities have substantial specialized infrastructure including medical gas systems, specialized HVAC, imaging equipment infrastructure (if X-ray is on-site), laboratory casework and equipment connections, procedure room medical builds, emergency power systems, medical waste handling, and extensive technology infrastructure for EHR and diagnostic systems. Urgent care facilities typically see 28-35% reclassification rates. A $2M urgent care buildout can generate $560K-$700K in accelerated first-year depreciation.

Medical campuses are excellent cost segregation opportunities due to scale and complexity. Each building can be analyzed separately, and site improvements (parking, landscaping, utilities, signage, emergency access roads) qualify for 15-year land improvements classification. Multi-building medical campuses benefit from economies of scale in the study cost while maximizing reclassification across all buildings and site infrastructure. A $20M medical campus development can generate $5M-$7M in accelerated depreciation, providing $1.75M-$2.45M in first-year tax savings.