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Most dentists who implement cost segregation do so after they have already closed on their building. The study gets commissioned in year one of ownership, the results get filed with the tax return, and the dentist considers it done. That approach works. But it leaves value on the table. In Episode 152 of The Dental Boardroom, Wes Read makes the case for doing a preliminary cost segregation analysis during due diligence — before you sign.
When you are under contract on a building — while attorneys are negotiating, lenders are underwriting, and inspectors are inspecting — a preliminary cost seg analysis gives you three things that are difficult or impossible to get after closing.
Two buildings with the same purchase price can have very different after-tax costs depending on how their interiors are composed. A dental office with a full clinical buildout — specialized plumbing, HVAC, cabinetry, and equipment infrastructure — contains a much higher percentage of 5-, 7-, and 15-year property than a bare commercial shell.
That means the dental-rich building generates far more accelerated depreciation in year one, and its true after-tax cost is meaningfully lower. A preliminary cost seg analysis lets you see this before you close, so you are comparing buildings on the right basis — after-tax net cost, not just sticker price.
How the purchase price is allocated between land, building, and personal property in the purchase contract directly affects your depreciation. Land is never depreciable — so the higher the land allocation, the smaller your depreciable base.
This allocation must be negotiated. The seller has an incentive to push value toward land and building, since those attract lower capital gains tax rates for them. You have the opposite incentive. The time to negotiate this is before you sign, not after you close. A preliminary cost seg analysis gives you the data to support your proposed allocation, and a defensible methodology to present to the seller's team.
This is directly analogous to the asset allocation negotiation when you buy a dental practice — how much goes to goodwill, equipment, non-compete, and accounts receivable. The building purchase deserves the same rigor.
In high-cost markets like Southern California, appraisers sometimes allocate a disproportionately large percentage of a property's value to land. Since land is excluded from all depreciation, a high land allocation dramatically reduces your depreciable base and your tax benefit.
A qualified cost seg firm can help you establish a defensible, documented land-versus-improvement allocation before closing. This gives you both a negotiating anchor and a paper trail that supports your tax position if the IRS ever questions it.
If you can get a preliminary cost seg analysis done during due diligence, do it. The information the study provides is worth more than the cost of the study itself. You will make a better-informed buying decision, negotiate a stronger purchase agreement, and start your ownership with a tax position that is already optimized — not one you are trying to fix after the fact.
Listen to Episode 152 of The Dental Boardroom Podcast: https://podcasts.apple.com/us/podcast/152-cost-segregation-tax-strategy-for-dentists-part-4/id1518344747?i=1000761993737
Wes knows what's best for dental practices. He's been doing this for a long time and he sees lots of practices. He can tell me how our practice is doing, and what we can do to increase our productivity. With past CPA's, there were no ideas. It was all coming from me, saying "I think I can do better, but I don't know how." I come in to meet with Wes and he says "You CAN do better, and I know how."
PracticeCFO is in hundreds of dental offices around the country. They know what numbers should look like. They know what percentages of payroll, rent and supplies should be, and they will hold you accountable to those numbers, which will really help you stick to your plan and your path of growth and savings. That is invaluable
Whenever something comes up, whether it's building or practice related and we weren't sure where the numbers would go, PracticeCFO has been instrumental in helping us figure that out. I can't say enough of how important that is - that it goes beyond that initial partnership. They make sure this business marriage works.
When I go home from work, I don't spend a whole lot of time stressing about what my books look like, or how much I owe in taxes. By using PracticeCFO, the burden of keeping track of a lot of the big financial numbers and metrics are taken off my plate.
PracticeCFO helped me develop a plan for the future. I have colleagues that work with other accountants that don't have a plan - they just look at the numbers of the practice and that's it. There's no plan for 10, 20 years from now. But with PracticeCFO, you get that. PracticeCFO makes you feel like you're they're only client.
(In reference to his practice sale) What could've been super stressful, wasn't! When picking John and Wes, it was from word of mouth recommendations and other people's experiences from the past that really did it for me. And it turns out that those recommendations were right on the line.
Wes knows the business side of dentistry. His comprehensive plan will organize your personal and professional finances so you can focus on taking care of patients. Massive ROI.
I can’t say enough good things about everyone at PracticeCFO. Everyone on the team is professional, organized, knowledgeable, helpful and kind. They also respond to emails and phone calls immediately and are always happy to help. They have helped me navigate year-to-year as a business owner. PracticeCFO gives me peace of mind that my business is in good hands.
I love Practice CFO! They have helped me obtain a practice and maintain a practice. They are incredible people who are on top of everything and make owning and running the business portion of a practice easy. They couldn’t be better for my business and my sanity. They have every detail of the business and taxes taken care of where all I have to do is show up and follow their easy steps to success!
Practice CFO has the best tools I’ve seen for personal tax and financial planning in addition to top-tier corporate tax and accounting services. I have been very pleased with the level of quality service. They manage my monthly bookkeeping and accounts payable. It is a great system and saves me a ton of time, and it allows us to have monthly financial statements within a week of month end.
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