Dialysis centers, dental offices, labs and urgent care clinics contain specialized buildouts: dedicated plumbing and electrical, water treatment, shielding and custom casework. Some of that can be depreciated over shorter lives than the 39-year building. But much of the medical equipment, including dialysis machines, dental chairs and imaging systems, is typically owned by the tenant, and a landlord can only depreciate what it owns. This guide explains what medical NNN buyers can realistically depreciate and how the tenant’s credit and reimbursement exposure fit in.
What a Medical NNN Buyer Can Depreciate
| Component | Typical Recovery Class | Usually Owned By |
|---|---|---|
| Dialysis machines, dental chairs, imaging and lab analyzers | 5- or 7-year personal property | The tenant |
| Water treatment and reverse osmosis systems serving equipment | Often personal property | Often the tenant; confirm |
| Dedicated electrical, plumbing and medical gas serving specific equipment | May be personal property in a study; otherwise building | Depends on who paid for the buildout |
| Interior improvements made after the building was first placed in service | Often 15-year qualified improvement property | Whoever paid for them |
| Paving, curbing, site lighting, landscaping | 15-year land improvements | The fee simple owner |
| Building shell and general building systems | 39-year nonresidential real property | The fee simple owner |
General guidance only. Ownership depends on the lease, any tenant improvement allowance and the purchase contract; classification depends on an engineering-based cost segregation study.
Short-life property the buyer acquires qualifies for 100% bonus depreciation for property acquired after January 19, 2025. If the landlord funded the buildout (for example, through a tenant improvement allowance reflected in the rent), more of it may belong to the landlord; if the tenant paid for it, it generally does not.
Illustrative Example: $3.5 Million Fee Simple Dialysis Center
The example shows the mechanics under stated assumptions; it is not an estimate for any real property.
| Item | Amount | Assumption |
|---|---|---|
| Purchase price | $3,500,000 | Fee simple; the tenant owns its dialysis equipment and water treatment |
| Land | $630,000 | 18% of price, not depreciable |
| Depreciable basis | $2,870,000 | Building, landlord-owned buildout and site improvements |
| Short-life property per a hypothetical study | $574,000 | 20% of depreciable basis: site work and landlord-owned buildout |
| Year 1 bonus depreciation | $574,000 | 100% bonus, property acquired after Jan. 19, 2025 |
| Maximum federal tax value at 37%, if usable | ~$212,000 | Plus regular depreciation on the building |
Whether that value is realized in the first year depends on the investor’s ability to use the deduction. NNN rental activity is generally passive, so losses offset passive income first and are otherwise carried forward, unless the investor is a real estate professional who materially participates. Bonus depreciation is generally recaptured on a taxable sale, much of it as ordinary income, unless real property gain is deferred through a 1031 exchange.
Medical Tenants: Credit and Pricing
Medical tenants are not uniformly strong credits, and medical properties do not ask uniformly low cap rates. Here is how common medical tenants compare in our data:
| Tenant | S&P / Moody’s | Status | Median Asking Cap (Oct. 4, 2026) |
|---|---|---|---|
| DaVita | BB | not investment grade | 6.88% (56 listings) |
| Aspen Dental | B- | not investment grade | 6.50% (27 listings) |
| Fresenius Medical Care | BBB-/Baa3 | investment grade | Too few listings |
| Labcorp | no verified rating | not yet verified | Too few listings |
| Quest Diagnostics | BBB+/Baa1 | investment grade | Too few listings |
Ratings update from our ratings database. Cap rates are medians of active listings tracked by InvestmentGrade.com; asking cap rates are not closing cap rates. Dialysis and clinic leases are often signed by subsidiaries or joint ventures; confirm the tenant entity and any parent guaranty.
DaVita, the largest US dialysis provider, operated 2,657 outpatient dialysis centers in the US at the end of 2025, according to its 10-K, and is rated BB, below investment grade. Its listings ask a median cap rate of about 6.9%, well above quick service tenants such as Taco Bell (about 5.5%). See the DaVita tenant profile.
Reimbursement Risk
Many medical tenants depend on government payers. In 2025, DaVita’s US dialysis patient service revenue came 57% from Medicare and Medicare Advantage, 7% from Medicaid and managed Medicaid and 3% from other government programs, for 68% from government-based programs, with 32% commercial, according to its 10-K. A higher share of patients are on government programs than that revenue mix suggests, because commercial payers pay more per treatment. Changes in Medicare rates or commercial contracts can therefore move a dialysis operator’s earnings materially. Dental and veterinary practices rely more on private insurance and cash payments, which brings different risks.
A net lease allocates property expenses such as taxes, insurance and maintenance to the tenant. It does not insulate the landlord from the tenant’s business: if reimbursement cuts weaken the tenant, the landlord’s rent, renewal odds and property value are exposed.
Key Due Diligence for Medical NNN
- Equipment and buildout ownership. Get an asset list and confirm what conveys. Tenant-owned equipment is not part of the buyer’s depreciable basis.
- Tenant entity. Confirm whether the parent or a subsidiary or joint venture signs the lease and whether the parent guarantees it.
- Re-tenanting. Purpose-built medical space can be costly to convert; remaining term and location matter more than usual.
- Regulation. Review the tenant’s reimbursement exposure and any licensing tied to the site.
Frequently Asked Questions
How much depreciation does a dialysis center NNN property generate?
It depends on what the buyer owns. The tenant usually owns the dialysis machines and often the water treatment system, so the buyer’s short-life property is mainly site improvements and any landlord-owned buildout, which qualify for 100% bonus depreciation for property acquired after January 19, 2025. The building is 39-year property. Have a cost segregation study and confirm what conveys.
Are medical NNN properties recession resistant?
Medical demand is less tied to the economy than discretionary retail, but medical tenants carry their own risks: reimbursement changes, regulation and operator leverage. Several large medical tenants are rated below investment grade, so underwrite the tenant, the lease and the site rather than relying on the sector.
What is the main risk with medical NNN properties?
Tenant credit and reimbursement exposure, combined with limited re-tenanting flexibility. Purpose-built medical space can be expensive to convert if the tenant leaves, so remaining term, tenant entity and location matter. Credit profiles are in our tenant ratings database.
Interested in medical NNN acquisitions? We source dialysis, dental, urgent care and diagnostic NNN properties nationally and gather what your tax adviser and lender need: what conveys, tenant entity and lease terms. Tell us your acquisition criteria →
Related Tax Strategy Deep Dives
Related depreciation guides:
- Bonus depreciation for NNN investors (overview)
- Best NNN tenants for bonus depreciation (ranking)
- 1031 exchange + bonus depreciation combined
- Car wash NNN depreciation
- Gas station and C-store depreciation (the 15-year building tests)
- QSR and auto service depreciation
- Cost segregation guide for NNN properties
- NNN cap rates 2026 quarterly report
- Recession-proof NNN tenants
Disclaimer: This content is for informational and educational purposes only and does not constitute tax, legal, or investment advice. Tax laws are complex, subject to change, and vary by jurisdiction. Examples and figures are illustrations under stated assumptions, not estimates for any specific property. Every property, lease structure, and investor tax situation is different. Always consult a qualified CPA, tax attorney, and cost segregation specialist before making acquisition decisions. InvestmentGrade.com and Investment Grade Income Property, LP do not provide tax advice.
