Medical Office Buildings

Medical Office Cost Segregation

Medical office buildings carry a lot of tenant-specific short-life property, and the share of the depreciable basis that moves comes from the building's own cost detail. Equipment used in the practice, the share of the electrical system that serves it, and removable finishes can qualify for 5-year recovery when the facts of the installation support it (see the authority for each line below). A cost segregation study unlocks that deduction in the first year you own the building.

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ClickDrag Finance: medical office cost segregation

$499* / $15,000

A $499* cost segregation workpaper for a rental property, for owners and advisors (*for a property whose purchase price plus construction costs total under $2.0 million); a $15,000 study up to $250 million in purchase price plus construction costs.

Delivered in 15–20 business days

Our document-driven, human-reviewed process typically returns a full study 15–20 business days after complete documents are in — so you can close the tax year on your schedule.

ATG methodology

Built to the IRS Cost Segregation Audit Techniques Guide with full asset detail and supporting documentation that traces every dollar to its source.

Why medical office buildings carry so much short-life property

A medical build-out can carry a good deal of short-life personal property, depending on how each item is installed: equipment used in the practice, the share of the electrical system that serves that equipment, and HVAC whose sole justification is an equipment requirement. Plumbing, general lighting and wiring that serve the building stay 39-year building components. Whether a system such as medical gas piping is personal property or a structural component turns on whether it serves the practice's equipment or the building's operation (Treas. Reg. §1.48-1(e)(2)); the IRS Cost Segregation Audit Techniques Guide has no matrix for medical offices, so a commercial cost segregation study documents each line.

For property acquired after January 19, 2025, bonus depreciation under IRC §168(k) is 100%, so 5-year property is deducted in full in the year it is placed in service. If a study identified $3M of 5-year property in a medical office building (an illustration, not a band: we publish none for medical offices), that is a first-year federal deduction of $3M rather than about $77K a year on the 39-year schedule.

Year-end planning

Placing a property in service this tax year?

Property placed in service (ready and available for its intended use) by December 31, 2026, for a calendar-year taxpayer, can be depreciated on that taxpayer's 2026 return, including the shorter-lived property a cost segregation study identifies.

The checklist lists 10 things to confirm before a cost segregation study and the return, with the rule behind each one. See what is on the year-end checklist.

Which medical office components get a shorter recovery period, and under what authority?

At a glance

We publish no planning band for a medical office building: the share that moves out of 39-year property depends on the property’s own cost detail, and we do not estimate one without it.
Under Rev. Proc. 87-56, office furniture and communications equipment are 7-year property (class 00.11) and computers 5-year (class 00.12), and personal property (§1245) that no other asset category describes is 5-year property under asset class 57.0 when it is used in an activity that class covers, which includes wholesale and retail trade and personal and professional services; for a landlord, the class is generally the one for the activity the tenant primarily uses the property in (Treas. Reg. §1.167(a)-11(e)(3)(iii); ATG Ch. 6.C.5).
Land improvements are 15-year property under asset class 00.3; qualified improvement property (§168(e)(6)) is 15-year property only when it is an improvement made by the taxpayer to an interior portion of a nonresidential building and placed in service after the building was first placed in service, other than an enlargement, an elevator or escalator, or the internal structural framework; the building and its structural components (Treas. Reg. §1.48-1(e)(2)) stay 39-year nonresidential real property.
The IRS Cost Segregation Audit Techniques Guide has no industry matrix for medical office property, so each line below rests on the asset-class definitions in Rev. Proc. 87-56, the structural-component regulation, or a named case.

medical office components, their tax treatment, Rev. Proc. 87-56, 1987-2 C.B. 674 asset class, GDS recovery period and the authority for each
Component	Treatment	Asset class / statute	GDS recovery	Source and condition
Equipment used in the practice: exam, diagnostic and treatment equipment	Personal property (§1245)	57.0 Distributive Trades and Services	5-year	Rev. Proc. 87-56, 1987-2 C.B. 674, class 57.0 (Pub 946, Appendix B)Class 57.0 covers assets used in personal and professional services, and applies only to equipment no asset category (classes 00.11 to 00.4) describes: equipment one does describe keeps that class, such as office furniture (7-year, 00.11) and computers (5-year, 00.12) (ATG Ch. 6.C.6).
Office furniture: desks, files, reception seating	Personal property (§1245)	00.11 Office Furniture, Fixtures, and Equipment	7-year	Rev. Proc. 87-56, 1987-2 C.B. 674, class 00.11 (Pub 946, Appendix B and its worked example)
Computers and their peripherals	Personal property (§1245)	00.12 Information Systems	5-year	Rev. Proc. 87-56, 1987-2 C.B. 674, class 00.12 (Pub 946, Appendix B)
Special electrical equipment and branch wiring that serves medical equipment	Personal property (§1245)	57.0 Distributive Trades and Services	5-year	Hospital Corp. of America v. Commissioner, 109 T.C. 21 (1997) (ATG Ch. 2 and the Ch. 6.D case table)The IRS acquiesced in the case’s test but not in every item it decided (AOD 1999-008), and wiring for general building operation is a 39-year building component.
Telephone, intercom and communication equipment and wiring	Personal property (§1245)	00.11 Office Furniture, Fixtures, and Equipment	7-year	Rev. Proc. 87-56, 1987-2 C.B. 674, class 00.11, which includes communications equipment (Pub 946, Appendix B; ATG Ch. 7.B and 7.C, "Office Furnishings"); Hospital Corp. of America v. Commissioner, 109 T.C. 21 (1997) for the wiring (ATG case table)Not communications equipment that another asset class includes, and the IRS did not acquiesce in every item Hospital Corp. of America decided (AOD 1999-008).
Carpet and vinyl floor and wall coverings	Personal property (§1245)	57.0 Distributive Trades and Services	5-year	Hospital Corp. of America v. Commissioner, 109 T.C. 21 (1997) (ATG case table)Permanent coverings such as tile are structural components under Treas. Reg. §1.48-1(e)(2), and the IRS did not acquiesce in every item the case decided (AOD 1999-008).
HVAC installed only to meet the temperature or humidity that equipment requires	Personal property (§1245)	57.0 Distributive Trades and Services	5-year	Treas. Reg. §1.48-1(e)(2), quoted in ATG Ch. 2Only when that requirement is the sole justification for the installation; HVAC that also serves comfort is a 39-year building component.
Site work: paving and parking areas, curbing, sidewalks, fencing, landscaping, site drainage	Land improvement (§1245 or §1250)	00.3 Land Improvements	15-year	Rev. Proc. 87-56, 1987-2 C.B. 674, class 00.3 (Pub 946, Appendix B)
Interior improvements made after the building was first placed in service	Building component (§1250)	Qualified improvement property, §168(e)(6)	15-year	§168(e)(6) and §168(e)(3)(E)(vii); ATG Ch. 6 (pp. 86–87)Qualifies as qualified improvement property only when it is an improvement made by the taxpayer to an interior portion of a nonresidential building and placed in service after the building was first placed in service, and never for an enlargement, an elevator or escalator, or the internal structural framework.
Building shell, central HVAC, plumbing, general lighting and building wiring	Building component (§1250)	Nonresidential real property (building or structural component)	39-year	Treas. Reg. §1.48-1(e)(2), quoted in ATG Ch. 2; Hospital Corp. of America (over-bed fluorescent lights held §1250)

Sources

IRS Cost Segregation Audit Techniques Guide (Publication 5653, rev. 2-2025)
IRS Publication 946, How To Depreciate Property (2025), Appendix B — Table of Class Lives and Recovery Periods, which reproduces the asset classes of Rev. Proc. 87-56, 1987-2 C.B. 674

GDS recovery periods shown; the alternative depreciation system uses longer ones. A classification depends on the facts of the installation, and a study documents them line by line. This table is general information, not tax advice.

Engineering-based or document-based: how is a medical office cost segregation study built?

The $15,000 cost segregation study is document-driven: it applies an engineering principles-based methodology, the cost classification approach described in the IRS Cost Segregation Audit Techniques Guide (Publication 5653), to the property's own documents and to photographs linked to the components they support, with a qualified human review of every component.

The IRS Cost Segregation Audit Techniques Guide (ATG) — the document IRS agents use when auditing cost segregation studies — sets out the tests a study must apply, and its case table records the Hospital Corp. of America decision on hospital electrical, communication wiring and floor coverings. Our studies cite chapter and verse from the ATG for every reclassified asset, so each reclassification is tied to its ATG reference.

Each study includes a complete asset schedule at the component level, and documentation that maps every dollar to its source in the construction cost breakdown.

Because medical office tenants negotiate detailed build-out allowances and construction contracts, the documentation trail is typically excellent — which means a higher-quality study and stronger audit position than comparable asset classes.

Hospital Corp. of America — the electrical test

The Tax Court held the share of a hospital’s electrical system serving its equipment, and the branch wiring to it, to be personal property (109 T.C. 21 (1997)); the IRS acquiesced in the test but not in every item (AOD 1999-008).

Component-level asset schedule

Every reclassified item is listed individually with its cost, recovery period, and IRS authority. No lump-sum estimates.

Look-back studies (IRC §481(a))

Own a MOB you acquired years ago? A look-back study claims the missed accelerated depreciation in a single year on Form 3115, with no amended returns, for a building you placed in service in an earlier tax year and still own.

Bonus depreciation coordination

We flag which reclassified assets qualify for IRC §168(k) bonus depreciation and include the Year-1 deduction impact in the executive summary your CPA needs.

Medical office cost segregation FAQ

How much does a medical office building cost segregation study cost?

The $499* cost segregation workpaper covers a rental property, ordered by the owner or by a CPA or advisor for a client (*for a property whose purchase price plus construction costs total under $2.0 million). Our $15,000 study covers a property whose purchase price plus construction costs total up to $250 million; an owner whose property is under $2.0 million is offered the workpaper instead. Above $250 million in purchase price plus construction costs, the study is scoped on a call with an advisor, and if you are not sure of the figure, Howard reaches out personally.

How much of a medical office building can be reclassified?

We do not publish a planning band for medical office buildings: the share of the depreciable basis (purchase price plus construction costs, less land) that moves into 5- and 15-year property comes from the building's own cost detail. It is driven by the equipment used in the practice, the share of the electrical system that serves that equipment, removable finishes and site work; the table on this page gives the source and condition for each, and permanent finishes such as tile stay with the building.

Do medical gas systems and imaging suite electrical qualify for accelerated depreciation?

Some of them can. Special electrical equipment and branch wiring that serve medical equipment were held to be personal property (§1245) in Hospital Corp. of America v. Commissioner, 109 T.C. 21 (1997), though the IRS did not acquiesce in every item that case decided (AOD 1999-008); HVAC qualifies only when the equipment’s temperature or humidity requirement is the sole justification for installing it (Treas. Reg. §1.48-1(e)(2)); and piping and wiring that serve the building generally are 39-year building components. A study therefore classifies medical gas, imaging-suite electrical and HVAC on the facts of each installation, and personal property used in a medical practice that no asset category of Rev. Proc. 87-56 describes is 5-year property under asset class 57.0.

Can a cost segregation study be done on a MOB that was purchased, not newly constructed?

A study works on a purchased building as well as a new one, and for a property you placed in service in an earlier tax year and still own, a look-back study claims the missed depreciation as a §481(a) adjustment on Form 3115 under the automatic change procedures (Rev. Proc. 2015-13 and section 6.01 of Rev. Proc. 2025-23), with no amended returns.

How is a medical office cost segregation study documented?

Our studies are built to the IRS Cost Segregation Audit Techniques Guide (ATG) with full asset-level detail and supporting documentation that maps every dollar to its source. The ATG has no industry matrix for medical offices, so each line rests on the asset-class definitions, the structural-component regulation or a named case, shown in the table on this page.

How long does it take?

Upload your closing statement, construction contracts or AIA schedules, and property photos and an MOB study is typically delivered 15–20 business days after the complete document set is in.

Which IRS asset class and recovery period apply to medical office property in a cost segregation study?

Each component’s recovery period follows from its Rev. Proc. 87-56 asset class or its statutory category, as set out here. Under Rev. Proc. 87-56, office furniture and communications equipment are 7-year property (class 00.11) and computers 5-year (class 00.12), and personal property (§1245) that no other asset category describes is 5-year property under asset class 57.0 when it is used in an activity that class covers, which includes wholesale and retail trade and personal and professional services; for a landlord, the class is generally the one for the activity the tenant primarily uses the property in (Treas. Reg. §1.167(a)-11(e)(3)(iii); ATG Ch. 6.C.5). Land improvements are 15-year property under asset class 00.3; qualified improvement property (§168(e)(6)) is 15-year property only when it is an improvement made by the taxpayer to an interior portion of a nonresidential building and placed in service after the building was first placed in service, other than an enlargement, an elevator or escalator, or the internal structural framework; the building and its structural components (Treas. Reg. §1.48-1(e)(2)) stay 39-year nonresidential real property. The IRS Cost Segregation Audit Techniques Guide has no industry matrix for medical office property, so each line below rests on the asset-class definitions in Rev. Proc. 87-56, the structural-component regulation, or a named case.

Is ClickDrag Finance's medical office cost segregation study engineering-based?

In its method, yes, for the study: ClickDrag Finance's medical office study applies an engineering principles-based methodology to your documents and photographs. The $15,000 cost segregation study is document-driven: it applies an engineering principles-based methodology, the cost classification approach described in the IRS Cost Segregation Audit Techniques Guide (Publication 5653), to the property's own documents and to photographs linked to the components they support, with a qualified human review of every component.

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ClickDrag Finance as your medical office cost segregation provider

We run cost segregation on medical office buildings, where equipment used in the practice is 5-year property under Rev. Proc. 87-56 asset class 57.0, and the share of the electrical system that serves medical equipment can be personal property under Hospital Corp. of America v. Commissioner, moving out of the 39-year nonresidential bucket.

Price: $499 for a cost segregation workpaper on a rental property whose purchase price plus construction costs total under $2,000,000 — a workpaper for the taxpayer's tax preparer, reviewed before release, typically ready 3–5 business days after all required documents are in. $15,000 for the cost segregation study, for a property whose purchase price plus construction costs total up to $250,000,000 — qualified human review and oversight, typically delivered 15–20 business days after complete documents are in. Above $250,000,000, the scope is agreed on a call with an advisor before any price is quoted. Both are offered to owners and to CPAs or advisors acting for a client; the property's purchase price plus construction costs decide which one applies.
Eligibility: No unit-count limit and no hard minimum. A cost segregation study is worth it when three conditions hold together: the basis is large enough for the accelerated deductions to outweigh the fee (roughly $500K of basis for a study priced in the thousands of dollars, which is a pricing threshold rather than a tax rule, and lower for a lower-priced report), the deduction is usable this year given the owner's passive-activity position, and the hold is long enough to survive recapture. All three, or the honest answer is no.
What is included: Component-level classification documented to the IRS Cost Segregation Audit Techniques Guide, reconciled to your depreciable basis, with a depreciation schedule and a fixed-asset import template for your CPA, built from your documents and from photographs linked to the components they support.
Payment: The workpaper is paid in full at checkout; a study starts with a call and a proposal. All fees are non-refundable except as required by applicable law (see our terms).

Start your cost segregation study · Full pricing and eligibility · How we compare to other providers, including where a cheaper one is the better buy

Educational information, not tax advice. No estimate is a completed cost segregation study.

Who reviews and who signs a ClickDrag Finance cost segregation study?

Question	$499* workpaper	$15,000 study
Who reviews it?	It is reviewed before release.	A qualified human review of every component, with a project manager on the engagement.
Who signs it?	It is a workpaper for the taxpayer's tax preparer, prepared from the information the buyer provides.	ClickDrag Finance signs the study (black label), and its signer block names its preparers: Howard Krieger (MBA, former ASA), Managing Director; and Robert H. Hutchins (CPA (Inactive), CVA (Emeritus)), Senior Tax Advisor.
Does a cost segregation study include a site visit?	It is prepared from the documents and photographs the buyer provides.	It can include a site visit, by appointment, and a visit is preferred; when a site visit is not feasible because of cost or timing, the property is documented from its own records and from photographs linked to the components they support, and each photograph’s embedded date and location data are read and recorded.
What audit support comes with it?	The workpaper and its stated procedures.	The deliverable itself is the support: the written study, with its methodology, cost sources and per-component classification rationale.

*For a property whose purchase price plus construction costs total under $2.0 million.

Our terms set out the terms of each product.