Published by AE Tax Advisors Team • 2025-03-10

Medical Office Building Cost Segregation Delivers $175,000 in Savings

The Client

Dr. Priya Nair and her business partner owned a 12,000-square-foot medical office building in Tampa, Florida, purchased for $2.4 million. The building housed their orthopedic practice and two tenant medical practices. Combined practice income exceeded $650,000 annually.

The Problem

The building was being depreciated over 39 years as commercial property, producing only $49,000 per year in depreciation. Despite significant specialized medical buildout -- including exam room cabinetry, specialized plumbing, electrical upgrades for imaging equipment, and dedicated HVAC zones -- none of these components had been segregated for accelerated depreciation.

Our Strategy

Our cost segregation study identified extensive reclassification opportunities specific to medical office buildings. We moved $310,000 into 5-year property (medical cabinetry, specialized electrical, exam room fixtures), $145,000 into 7-year property (decorative elements, waiting room furnishings), and $225,000 into 15-year land improvements (parking, walkways, landscaping, signage). The total accelerated basis reached $680,000.

The Results

The $680,000 in front-loaded depreciation eliminated the partners' federal tax liability on the building income and offset a substantial portion of their practice income. Total Year 1 savings reached $175,000 across federal and state taxes. The partners used the savings to fund an expansion of their imaging department.

Key Takeaway

Medical office buildings are among the highest-value cost segregation candidates because specialized medical buildout -- exam room infrastructure, dedicated HVAC, reinforced flooring for equipment -- qualifies for accelerated depreciation that generic office analysis would miss.