Tax Benefits and Cost Segregation for Doctors

Beyond the pride of ownership, one of the most overlooked benefits of owning your medical or dental building is the annual tax deduction from depreciation. This article outlines how those deductions work and what your CPA will want to verify.

Depreciation Basics

Depreciation is a non-cash deduction reducing taxable income. Typical medical buildings depreciate over 39 years on approximately 80 percent of cost (excluding land). At a 35 percent tax rate, each $30,000 of depreciation saves roughly $10,500 in taxes annually.

Accelerating with Cost Segregation

A cost-segregation study identifies components that can be depreciated faster—cabinets, lighting, or flooring. This increases deductions during the first five years, when cash flow is most critical.

Entity Structure and Inter-Company Rent

Most owners form a separate real-estate LLC that leases to the practice entity. Rent paid between them affects both taxable income and appraised value. Your CPA will set that rent at a fair-market rate for compliance and efficiency.

Depreciation Recapture and Exit Planning

When a property sells, prior depreciation may be recaptured as taxable gain. Many doctors offset or defer that tax through 1031 Exchanges or long-term hold strategies.

Next Step

NextSite integrates tax and ownership modeling with CPA collaboration to reflect real-world after-tax costs.