Cost Segregation Case Study – Medical Office  

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    • Jan 24, 2025
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Maximize Your Medical Office’s Tax Strategy

What is Cost Segregation
Cost segregation is an effective tax planning strategy that helps businesses and individuals involved in constructing, purchasing, expanding, or renovating real estate reduce their tax liabilities by accelerating depreciation deductions, which allows for the deferral of both federal and state income taxes.

Medical Office
Medical offices often feature specialized equipment, exam rooms, and unique design elements, making them excellent candidates for cost segregation. Items like advanced medical devices, custom cabinetry, HVAC systems, and specialized electrical setups can be depreciated over shorter periods, resulting in significant tax savings. By utilizing cost segregation, owners can quickly identify these assets, accelerating depreciation and optimizing their tax positions. This strategy maximizes the financial advantages of healthcare real estate investments, freeing up capital for reinvestment and ultimately improving cash flow and profitability.

Practical Example

This case study highlights the benefits of accelerated depreciation, showing how medical offices with specialized infrastructure and patient-focused amenities can optimize depreciation for tax efficiency, reduce taxable income, and improve cash flow, boosting long-term profitability.

Building information

○ Building Type 🡪 Medical Office
○ Property Type: 🡪 Commercial
○ Building Size: 🡪 6,000 SF
○ Study Scope: 🡪 Acquisition
○ Condition: 🡪 Good
○ Filling Year: 🡪 2023
○ Date Placed in Service: 🡪 2020
○ Purchase Price less Land or Total Construction Cost: 🡪 $2,400,000
○ Tax Rate: 🡪 30%
○ Return on Investment Factor: 🡪 8%

Summary of Benefits

○ 25% Additional Tax Deductions in First Year: 🡪 $1,304,856

○ RNPV Over Remaining Life of Property: 🡪 $347,420

○ Net Present Value (NPV) Over 10 Years: 🡪 $372,999

Building Allocation After Study

  • medical_services
    5 Year Property

    Depreciable Basis: $261,678 at 11%

  • medical_services
    7 Year Property

    Depreciable Basis: $140,903 at 6%

  • medical_services
    15 Year Property

    Depreciable Basis: $244,190 at 10%

  • medical_services
    39 Year Property

    Depreciable Basis: $1,753,229 at 73%

  • currency_exchange
    Total

    Depreciable Basis: $2,400,000 at 100%

Sales Tax Exemptions

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