Remodeling or Building a Dental Office

Builders discuss construction blueprintTangible 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.

Tangible Property Final Regulations FAQ








5 replies
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