Episode 51. Cost Segregation For Dentists

Cost Segregation for Dentists: Your accountant told you that you can't use a cost segregation study on the building you own because of passive loss rules. If you're a dentist or any medical professional, your accountant is wrong. In this podcast, I break down exactly why the passive loss rules don't apply to you and how you can take a massive depreciation deduction this year using cost segregation in 2026.

I had a dentist call me last week with a $400,000 tax bill. His accountant told him cost segregation wasn't an option because he wasn't a real estate professional. That accountant was applying the passive loss rules exception incorrectly. If you own the building where your medical practice operates and you're the tenant, this is a medical professional tax deduction you need to know about.

I walk you through the three things every medical professional needs to know about cost segregation for dentists. First, why your accountant said you can't do it and why that logic doesn't hold up. Second, the self-rental exception under Section 469 grouping that changes everything for dental practice tax planning. Third, how accelerated depreciation and real estate depreciation work together so the deduction actually hits your tax return.

This is one of the most overlooked tax deductions for doctors, chiropractors, and physicians. Whether you need a chiropractor tax strategy or dentist tax planning, if you own your building, a cost segregation study can unlock a massive depreciation deduction in a single year. That's how powerful this medical practice tax savings strategy is for any S corporation tax strategy. 

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*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your attorney, accountant, tax preparer, and/or other advisor regarding your specific situation or your client’s specific situation. The information and all accompanying material are for your use and convenience only.

Transcript

The Big Cost Seg Myth

SPEAKER_01 0:01

If you are a dentist or honestly any medical professional and your accountant said that you cannot use cost segregation study on the buildings that you own so that you can accelerate your depreciation and take a huge tax write-off. If your accountant said you cannot do it, then he is wrong. And I'm going to show you why you as a dentist or really any medical professional can actually do it. And I'm gonna do this in three steps. Number one, we'll talk about why your accountant said that you actually cannot use the cost segregation and why you cannot take this huge deduction. Number two, why your accountant is actually almost correct, but it does not apply to you as a medical professional. And number three, what your accountant doesn't know and how you can actually use cost segregation as a medical professional and be able to write off a huge depreciation expense off your taxes. Yes, even this year, and yes, even going back to the previous year. Now, if you stick with me till the end, I will show you how you can use cost segregation study for each property that you own as a medical professional and be able to write off using the cost segregation.

Henry’s $400K Tax Problem

SPEAKER_00 1:13

Welcome to the tax reduction podcast for money-making entrepreneurs with Boris Musheev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies. And this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy-to-understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Passive Loss Rules Made Simple

The Self Rental Exception

SPEAKER_01 1:46

Alright, step one. Let's talk about what your accountant really said that you cannot use the cost segregation study to take depreciation. So, what inspired this, to be honest with you? I had uh somebody call me last week. Uh his name, we're just gonna call him Henry, okay? He's a dental professional, he owns two uh dental practices, and he owns two buildings in which his dental practices operate. He said, Boris, I'm looking at a$400,000 tax bill. He said, My accountant is good. You know, we do the Augusta strategy, we do the cash balance plan, but I keep telling him I want to use the cost segregation for these buildings that I own. And my accountant says, No, it doesn't matter, you cannot do it because you're not a real estate professional and it has passive losses. So let me explain to you why that accountant said that and how this may not apply to you and how it didn't apply to Henry. Okay. Number one, let's understand passive rules. So when you own real estate and that real estate produces what's called a paper loss. Now, why does a real estate produce a paper loss? It could be because of a really nice depreciation deduction, or on top of that, you can do what's called a cost segregation, which lets you accelerate the depreciation deduction. So basically think of it this way: take the building value of the whatever the building that you own, about 25% of it, roughly speaking, can be deducted in the first year. That deduction can create a paper loss. That loss, it's considered a passive loss. Passive losses are not deductible against active income. So you have a business income or you have a W-2 income, okay? It is not tax deductible. But passive losses are deductible against passive income, which most business owners really don't have a passive income, right? In majority of cases, right? They just have a passive loss from real estate. Or passive losses are deducted if you are a real estate professional. But if you're actively participating in your business in a dental practice, this is not the case. So Henry's accountant said, Hey, you cannot do cost segregation to take to deduct the paper losses because there are passive loss rules, and you cannot deduct passive losses against your dental income or any income that you have from the medical profession. That's why his accountant said he cannot do it. Now, let's talk about why it may not apply to you. Okay, number one, not all losses from real estate losses are considered passive. There are exceptions to the rules. Yes, if you own a building or a rental property or commercial property, it produced losses, those are passive losses. But if you have a building in which your dental practice is located, right, where you pay rent to yourself. In the case of Henry, he had two LLCs, two dental practices, right? Both paid rent to him. Those buildings are owned by his LLC. He's a hundred percent owner of the LLC, he's a hundred percent owner of the business of his own dental practice, and he's a hundred percent tenant. So passive loss rules does not apply to him. If you are a dental professional or any medical professional, and you own a building in which your practice rents a space from, well, guess what? Passive loss rules do not apply to you. Cost segregation deductions generated from the depreciation, for example, those really nice big depreciation expenses, those losses can now be deducted against your medical practice income. Again, why? Because this is a self-rental.

Catch Up Depreciation With Cost Seg

SPEAKER_00 5:11

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Boris put together a free PDF for you, the business owner. Seven tax write-offs every S Corporation business owner must know. In this PDF, you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Grouping Under IRS Section 469

Short Term Rentals And Final Steps

SPEAKER_01 5:41

So back to Henry, okay? So his accountant was applying the passive loss rules to everyone. In Henry's case, and in your case, if you own the building in which your medical practice uh basically rents from, well, guess what? Passive loss rules do not apply. Can you do cost segregation study for that building? Yes. What if you bought the building last year, two years ago, three years ago, four years ago, five years ago? Can you still do a cost segregation study? The answer is yes, you can. You can catch up on all those depreciation deductions you missed out, okay? And you can do it all in this year. That is very, very powerful for medical professionals and why a lot of their accountants don't tell them the truth because they don't know. So, again, if you don't have a tax advisor, get yourself a tax advisor. Start working with somebody that understands tax strategies and understands tax planning. Let's talk about what your accountant actually does not know and how you can use the cost segregation as a medical professional to write off huge depreciation expenses. You've got a medical practice, whether it's a dental practice, a chiropractic practice, or you're a physician, okay? It doesn't matter. You've got a business, an ass corporation, or any type of an entity, but most small business owners that I work with, a lot of medical professionals, have an ass corporation. So Henry has two dental offices and he's got two real estates, okay? Now he pays rent to each one of those real estates. They are in their own LLCs. The losses generated from this rental activities that are self-rental can be combined together with income from your dental practice on your personal tax return. This is called grouping on the section 469. You basically have to make an election on your tax return, attach a statement saying, Dear IRS, following the rules of 469, well, you don't have to say the word dear, following the rules of 469, I am grouping these two activities as one because I meet the economic test, which is 100% owner, 100% tenant, and all that stuff that we just talked about, okay? So IRS defines short-term rental as any rental property that was rented for seven days or less. And requirement number two is that you participated, you actively participated in this rental activity for a hundred hours or more. Short term doesn't play by passive loss rules, okay? So you can do cost segregation on your short term, generate really, really nice losses, and deduct it against your business income. Thanks so much.

SPEAKER_00 8:11

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to www.taxplanningcall.com. That's www.taxplanningcall.com. And be sure to subscribe to our podcast to be notified when the next strategy is released.