Tangible Property Regulations can make decision-making difficult for dentists considering the construction of a new office or remodel of an existing one. My good friends at KGKB, experts in the area of tax credits, tax incentives and cost recovery, have a detailed article on the subject. Any dentist contemplating the construction of a dental office should engage KGKB to perform a Cost Segregation Study in order to avoid having the entire cost of that new office stuck into a 39-year category for depreciation. Do the math… Do you want the cost of your project written off over 39 years or would it be nice to have a large portion written off over 5, 7, or 15 years instead?
A client emailed me about these regulations today. Here are my comments to him:
The bottom line on this for most of our clients is that we can’t run things through repairs like we may have in the past. For example, when a dentist gets digital radiography and no longer needs a dark room, it is likely that the dark room gets ripped out and converted for some other purpose – maybe to install a panoramic x-ray machine. That might cost $10,000 – $15,000. According to the letter of the law, that would be a 39-year write off. There are clients for whom I have run that expense through repairs. It saves the 39-year depreciation and property tax on the “asset.” Now with the Tangible Property Final Regulations in place, that would be a high risk treatment of those improvements. I actually have a tax return on my desk right now with this very situation. I have asked the client for the documents from the contractor so I can do a mini cost segregation study to see how much of their expense might be legitimately attributable to the “installation” of their new CBCT Scanner. It is a pain but worth the trouble.
Here is a link to the KBKG website with detailed information on the regulations. I believe these rules are intended for large enterprises that run on an accrual basis of accounting and may be publicly traded, but we are caught in the net with them.