Medical and dental practices: the densest fit-out in commercial real estate

The clinical layer

Operatory and exam-room casework, dedicated electrical with isolated grounds, equipment power drops, medical gas and vacuum piping, nitrous manifolds, compressed air, dedicated plumbing at each operatory, sterilisation suite casework and specialty exhaust, lead shielding around imaging rooms, nurse call and clinical data cabling.

In a practice with eight to twelve operatories, this infrastructure can be a third or more of interior construction cost, and it is overwhelmingly 5-year property.

Lead shielding, specifically

Lead-lined wall board and doors installed to shield a specific imaging device are a good illustration of the operative test. The shielding does not make the building function as a building. It exists because a particular piece of equipment is in that room, and it would be removed if the equipment left.

The two-entity structure

Many practice owners hold the real estate in one entity and operate the practice in another, paying rent between them. That is generally helpful for a study: it separates building basis from equipment cleanly and clarifies which entity claims which deduction.

It also raises grouping and self-rental questions under the passive activity rules that are worth resolving before the study rather than after. A self-rental to your own operating business has specific recharacterisation rules attached.

Typical range

24% to 36%. Dental and imaging-heavy practices sit at the top; general practice offices with modest build-out sit lower.

Tenant improvements

Practices leasing space and funding their own build-out own those improvements as depreciable assets. Interior work in a nonresidential building after the building was placed in service may qualify as qualified improvement property at 15 years — and the genuinely personal property inside it belongs at 5.