Case Study — Medical Office

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, parking lot lighting/dedicated electrical and landscaping & irrigation.  The best method for identifying all qualified property is the use of a cost segregation study where an engineer and CPA work together to identify and classify all qualified property.

Please note that qualified property, land improvements and personal property are terms used to describe costs in the real estate that can be written off more quickly for tax purposes.

Medical Office Example

• Cost of Property (Excluding land): $1,275,000
• Constructed and placed in service in 2005
  

In this case study done for tax year 2006, the medical office building had a total cost of $1,275,000, not including land. Through cost segregation analysis, the owner was able to re-classify 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 $96,000. The additional depreciation in the first year of the study was approximately $184,000.

The tax savings in the first year assuming a tax rate of 39% was over $71,000.

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*Net Present Value is a calculation that shows the combined benefits of a cost segregation study over the remaining tax life of the property. The combined benefits each year are adjusted back to today's dollars using a 7% discount factor. This allows our clients to compare the total benefits in today's dollars to the fee of our services.