Understanding Equipment Classification Challenges
Medical and dental facilities contain both movable equipment owned by practitioners and fixed improvements owned by building owners. Proper classification affects both cost segregation results and which party claims depreciation deductions.
Equipment connections and utility rough-ins become building improvements even when the connected equipment remains tenant property. The infrastructure supporting medical equipment—electrical circuits, gas connections, plumbing modifications—qualifies as landlord property eligible for cost segregation.
Certain medical equipment becomes permanently attached to the building and may be classified as building improvements rather than equipment. Imaging equipment with structural support, built-in cabinetry, and integrated systems require careful classification analysis.
Classification affects not only depreciation but also disposition. Equipment treated as building improvements may not transfer with the tenant upon lease expiration, while movable equipment typically belongs to the tenant regardless of who funded the purchase.
Distinguishing Building Improvements from Equipment
The test for building classification considers attachment method, damage upon removal, and intended permanence. Equipment bolted to floors or walls that would cause building damage upon removal tends toward building classification.
Integrated systems that cannot function independently of the building typically classify as improvements. Built-in cabinetry, fixed dental equipment, and imaging systems with structural support exemplify building-classified medical equipment.
Movable equipment retaining independent function and value regardless of location typically remains equipment. Portable diagnostic devices, rolling carts, and freestanding machines generally do not become building improvements.
Lease provisions may address equipment classification but do not override tax law. Even if leases specify equipment ownership, tax classification follows the physical and functional characteristics of the installation.
Impact on Cost Segregation Analysis
Building-classified equipment becomes part of cost segregation analysis. When medical equipment qualifies as building improvement, it may be reclassified from 39-year building depreciation to 5-year or 7-year personal property.
Equipment rough-ins and connections qualify for cost segregation regardless of connected equipment ownership. The building infrastructure serving medical equipment creates accelerated depreciation opportunities for building owners.
Proper documentation of equipment installations supports classification decisions. Photographs, installation specifications, and attachment details help establish appropriate treatment for examination purposes.
Classification questions should be resolved before studies are conducted. Uncertainty about equipment ownership affects which components are included in building owner cost segregation and which belong to equipment owners.
How Goodlane Group Helps with Equipment Classification
Goodlane Group helps healthcare property owners navigate equipment classification questions before cost segregation studies begin. Proper classification ensures study results accurately reflect building owner property and depreciation entitlements.
We work with your legal and tax advisors to analyze lease provisions and ownership arrangements affecting equipment classification. Clear understanding of property rights supports accurate cost segregation analysis.
Our preliminary analysis identifies major equipment installations requiring classification attention. Complex imaging systems, integrated treatment equipment, and specialty installations deserve focused analysis before study engagement.
Beyond classification, Goodlane Group coordinates cost segregation for both building improvements and separately-owned equipment. Healthcare facilities often benefit from coordinated studies addressing all depreciable property regardless of ownership.