Introduction
If you own your dental office building, you are likely sitting on a six-figure tax deduction that you haven’t claimed.
Most dentists depreciate their building over 39 years. That means if you paid $1 million for your office, you only get a tiny $25,000 tax deduction each year. But a dental office isn’t just “four walls and a roof.” It is filled with specialized plumbing for nitrous oxide, high-voltage electrical for CBCT machines, and expensive cabinetry.
In 2026, thanks to the One Big Beautiful Bill Act (OBBBA), you can strip these items out of the 39-year schedule and write them off instantly. This is called Cost Segregation, and this year, it is more powerful than ever.
1. What is Cost Segregation? (Slicing the Pie)
When you buy a building, the IRS assumes it is all “Real Property” (39-year life). A Cost Segregation Study is an engineering report that reclassifies parts of your building into “Personal Property” (5, 7, or 15-year life).
Common Dental “Personal Property”:
- 5-Year Assets: Decorative lighting, carpeting, cabinetry, and dedicated electrical connections for dental chairs.
- 15-Year Assets: Landscaping, paving, and curbs.
- The Plumbing Rule: Standard plumbing is “Real Property.” But plumbing specifically for your vacuum lines and nitrous oxide? That is “Equipment” (5-year asset).
2. The 2026 Update: 100% Bonus Depreciation is Back
This is the game-changer. For a few years, Bonus Depreciation was fading away (dropping to 40%). As of January 19, 2025, the OBBBA permanently restored 100% Bonus Depreciation.
Why this matters: If your Cost Seg study identifies $300,000 of “5-Year Assets” in your building:
- Without Bonus: You would depreciate that $300,000 over 5 years ($60k/year).
- With 100% Bonus: You deduct the full $300,000 from your taxable income this year.
Real World Math: If you have a $1,000,000 profit in 2026 and a $300,000 Cost Seg deduction, your taxable income drops to $700,000. At a 37% tax bracket, that is $111,000 in cash savings immediately.
3. The “Look-Back” Study (You Don’t Need to Buy a New Building)
Many dentists think, “I bought my building 5 years ago, so I missed out.” Wrong.
You can perform a “Look-Back” Study on a building you have owned for years.
- The Catch-Up: You calculate all the depreciation you should have taken over the last 5 years.
- The Section 481(a) Adjustment: You take that entire accumulated amount as a single deduction on your 2026 tax return.
- No Amended Returns: You do not need to amend old tax returns. You just file Form 3115 with your current return.
4. Does It Make Sense for You? (The ROI)
A Cost Segregation study typically costs $5,000 – $15,000. Is it worth it?
The Rule of Thumb: If your building’s cost basis (purchase price minus land) is over $500,000, the tax savings usually outweigh the fee by 10x.
- Example: A $1.5 million dental office often yields $230,000+ in first-year tax deductions.
5. Risks & Recapture (The Exit Strategy)
There is one catch: Recapture Tax. If you sell the building 3 years later, the IRS will want some of that tax money back.
The Strategy: Cost Segregation is best for dentists who plan to hold the building for 5+ years. However, even if you sell, you effectively received an interest-free loan from the government for those years.
Conclusion: Don’t Let Your Building Sit Idle
Your dental office is likely your most expensive asset. Don’t let the IRS treat it like a warehouse. By combining Cost Segregation with the new 100% Bonus Depreciation rules of 2026, you can drastically reduce your tax bill and reinvest that cash into your practice.
Your Action Plan:
- Check your Closing Statement. Did you pay over $500k for your building?
- Get a Feasibility Quote. Most firms (like KBKG or CSSI) will give you a free estimate of your tax savings before you pay a dime.
- File Form 3115. If you’ve owned the building for years, claim your “Look-Back” deduction this year.
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