Healthcare facilities—such as medical office buildings, surgical centers, dialysis clinics, and imaging suites—tend to have a higher proportion of specialized equipment and tenant-installed improvements than most other commercial asset classes. By accelerating depreciation on items like exam tables, imaging machines, lab casework, and specialty wiring, cost segregation unlocks greater early-year deductions that materially improve cash flow and lower after-tax holding costs. Compared to, say, a standard office or retail building—where much of the basis remains tied up in the 39-year structural shell—medical properties often shift 30–50 % of total basis into shorter-lived classes. That front-loads tax benefits, reduces net lease carrying costs, and enhances yield for equity investors or REIT shareholders.
Key Tax Law Overview
Under the Tax Cuts and Jobs Act (IRC § 168(k)), “bonus” depreciation allows a percentage of qualifying property costs to be expensed immediately rather than capitalized and depreciated over many years. For assets placed in service in 2025, the bonus rate is 40 %; in 2026 it falls to 20 %, and thereafter bonus depreciation sunsets unless Congress acts. The remaining cost basis flows through the Modified Accelerated Cost Recovery System—commonly known by its acronym MACRS—which prescribes specific recovery periods (5-, 7-, 15-, or 39-year) and applies a half-year convention in the first and last years.
MACRS Acronym
Modified Accelerated Cost Recovery System: the IRS-mandated depreciation methodology that defines asset classes and prescribes standardized percentage tables for annual write-offs.
Qualifying Cost-Segregation Items by MACRS Class
5-Year Property (Eligible for 40 % Bonus in 2025)
- Core Clinical & Tenant Improvements: Exam tables, medical stools, operator chairs, built-in cabinetry, millwork, nurse stations, modular partitions, privacy curtain tracks, specialty surgical/exam lighting, wall-mounted monitors, nurse-call/intercom units, carpeting and vinyl plank flooring in tenant areas, modular wall panels.
- Healthcare Equipment & Fixtures: X-ray machines, MRI/CT scanner components, lead-lined removable panels, lab fume hoods, biosafety cabinets, dialysis chairs and machines, infusion pumps, anesthesia machines (movable portions), endoscopy/video towers, laser and cryotherapy units, treatment tables, therapy equipment (treadmills, ultrasonics), computer/network cabling and data racks.
- Support & Admin: Reception desks and seating, office furniture (desks, file cabinets), conference-room A/V systems, breakroom appliances (microwave, refrigerator), tenant-installed signage, modular walls in administrative zones.
15-Year Property (Eligible for 40 % Bonus in 2025)
- Land Improvements: Parking lot paving and striping, concrete curbs and gutters, sidewalks and ADA ramps, exterior tenant signage, site lighting poles and fixtures, landscaping and automated irrigation systems, fencing and bike racks, exterior radiation-shield structures (if part of site), generator pads and enclosures, gas-storage pads.
39-Year Property (Straight-Line Only)
- Building Shell & Core: Structural walls, roof deck and membrane, permanent roofing systems, exterior windows and doors, load-bearing columns, foundational slabs, permanent HVAC units and ductwork, fire-sprinkler mains and risers, elevators and lifts, permanent plumbing and sanitary lines, elevator shafts, built-in escalators, large-scale chillers, boilers, and electrical service equipment.
A professional, engineering-driven cost-segregation study will validate each reclassified component—often shifting 30–50 % of your $5 million basis into the 5- and 15-year buckets—maximizing bonus depreciation, turbocharging Year 1 deductions, and delivering significant tax-shielded cash flow advantages for medical-office investors.
1. MACRS Property Classes
| Class | Recovery Period | Typical Assets | Bonus Depreciation (2025) |
|---|---|---|---|
| 5‑year | 5 years | Personal property and tenant‑improvements: equipment, furniture, movable partitions, specialty wiring, carpeting, etc. | 40 % immediate expensing |
| 15‑year | 15 years | Land improvements: paving, curbs, sidewalks, landscaping, site lighting, signage, fences, irrigation. | 40 % immediate expensing |
| 39‑year | 39 years | Building shell and core: structural walls, roof, windows, permanent HVAC, plumbing, fire‑sprinklers, elevators. | 0 % (straight‑line) |
2. Medical Office Types & Qualifying Cost‑Seg Items
Below, I’ve grouped common medical office and specialty‑center types, then listed the categories of assets within each that typically qualify for 5‑year or 15‑year reclassification. Anything not listed here generally remains in 39‑year.
A. Core Clinical Spaces
(e.g. General Practice, Family Practice, Primary Care, Urgent Care)
5‑year (Personal Property & TI)
- Exam tables & chairs
- Medical stools, operator chairs
- Millwork: built‑in cabinetry, nurse stations, casework
- Moveable partitions, privacy curtains & tracks
- Specialty lighting (surgical exam lights)
- Medical gas outlets & specialized piping (if separable)
- Computer/network cabling, data racks
- Nurse‑call systems, intercom units
- Carpeting & vinyl plank flooring (tenant areas)
- Wall‑mounted monitors, displays
15‑year (Land Improvements)
- Parking lot paving, striping, wheel stops
- Curbing, sidewalks, ramps
- Exterior signage (tenant identification)
- Site lighting poles & fixtures
- Landscaping & irrigation systems
B. Diagnostic & Imaging Centers
(e.g. X‑ray, MRI, CT, Labs & Testing)
5‑year
- X‑ray machines, MRI coils, CT scanners (movable portions)
- Lead‑lined drywall panels (if removable)
- Equipment anchoring systems
- Radiation shielding doors (if separable)
- Lab casework, fume hoods, biosafety cabinets
- Specialized electrical panels & transformers for imaging
- Clean‑room partitioning & HEPA filters (modular)
15‑year
- Exterior radiation shielding structures (if part of site)
- Secondary containment pads
C. Surgical & Specialty Centers
(e.g. Oral Surgery, Plastic Surgery, Ambulatory Surgery Centers)
5‑year
- Surgical lights & booms
- Anesthesia machines & gas delivery systems (movable)
- Stainless‑steel casework, scrub sinks
- Procedure‑room wall panels (removable modular panels)
- Medical gas storage tanks (if separable)
- Endoscopy towers, video monitors
15‑year
- External gas storage pads
- Emergency generator pad & enclosure
D. Dental & Orthodontic Practices
(e.g. Dental Offices, Orthodontic Centers)
5‑year
- Dental chairs, delivery systems, stools
- X‑ray sensors, panoramic imaging units
- Sterilizers, autoclaves
- Dental cabinetry & countertops
- Suction units & piping (tenant‑owned portions)
E. Therapy & Rehabilitation
(e.g. Physical Therapy, Pain Centers, Rehabilitation Centers)
5‑year
- Exercise equipment (treadmills, bikes)
- Treatment tables, therapy chairs
- Wall‑mounted parallel bars & mats
- Ultrasound & electro‑stimulation units
F. Specialty Clinics
(e.g. Dermatology, Cardiology, Dialysis, Infusion)
5‑year
- Dialysis machines & chairs
- Infusion pumps & IV poles
- Cardiac stress test treadmills & monitoring carts
- Laser & light therapy units
- Cryotherapy cabinets
G. Support & Administrative Areas
(e.g. Waiting Rooms, Reception, Offices)
5‑year
- Reception desks & seating
- Office furniture: desks, file cabinets
- Conference room A/V systems
- Breakroom appliances (microwave, fridge)
- Tenant‑installed partitions & modular walls
3. Putting It All Together
- Identify every piece of tenant‑owned equipment, specialty installation, and site improvement.
- Classify into 5‑year (TI & equipment), 15‑year (site improvements), or 39‑year (shell/core).
- Apply 40 % bonus depreciation in 2025 to the 5‑ and 15‑year pools; depreciate the remainder under MACRS.
A full engineering‑style cost segregation study will drill into vendor invoices, blueprints, and on‑site measurements to capture every dollar of reclassifiable cost—often shifting 30–50 % of basis into bonus‑eligible classes. That turbo‑charges early write‑offs, maximizes cash flow, and lowers after‑tax holding costs on your NNN‑leased medical office.
LEARN MORE: Investment Grade Healthcare: Guide to Healthcare NNN Tenants
