Many dentists eventually reach a point where they start thinking about their finances in a more strategic way. Once the practice is stable and patients are coming through the door consistently, questions often shift from day-to-day operations to longer-term planning.
Real estate is one topic that comes up frequently in those conversations.
There are several ways to use real estate to reduce dentist taxes in their financial strategy. In this article, we will focus on one of the most common options for practice owners: owning the building where your dental practice operates.
If you would like a broader overview of real estate strategies dentists sometimes use, including short-term rentals, you can also explore Virjee Consulting’s webinar on real estate strategies for dentists.
Why Practice Real Estate Is A Common Strategy For Dentists
Owning the building where your dental practice operates can serve two purposes at the same time.
First, it provides a long-term location for your practice. Second, it creates a separate real estate investment that may grow in value over time.
Many dentists purchase their practice building through a separate real estate entity, typically an LLC. The dental practice then pays rent to that entity.
The structure often looks something like this:
- The dental practice operates as an S corporation or professional entity
- A separate LLC owns the building
- The dental practice pays rent to the real estate entity
This arrangement can create several advantages.
The rent paid by the practice becomes a deductible business expense. At the same time, the real estate entity receives rental income and is able to claim deductions associated with owning the property.
Over time, the dentist is essentially paying rent to a property they own while building equity in the building itself.
From a long-term planning perspective, separating the practice and the real estate can also provide flexibility. The dentist may eventually sell the practice but retain ownership of the building, or sell both together, depending on the situation.
Depreciation of Dental Office Buildings
One of the primary tax benefits of owning commercial real estate is depreciation.
Commercial buildings typically depreciate over 39 years, which allows the owner to deduct a portion of the building’s cost every year as a business expense.
Depreciation is especially valuable because it is a non-cash deduction. The property owner receives a tax benefit each year even though the property itself may be appreciating in value.
For example, if a dentist purchases an office building for $2 million, a portion of that cost can be allocated to the building structure and depreciated annually. Depending on how the purchase price is allocated, the annual depreciation deduction may reach tens of thousands of dollars.
Those deductions can help reduce taxable income while the property continues to generate rental income from the practice.
Cost Segregation Can Accelerate Depreciation
While standard depreciation spreads deductions over 39 years, there are ways to accelerate those tax benefits.
One of the most powerful strategies used in commercial real estate is a cost segregation study.
A cost segregation study analyzes the building in detail and separates different components into shorter depreciation schedules. Instead of treating the entire property as a 39-year asset, certain parts of the building may qualify for depreciation over 5, 7, or 15 years.
Dental offices often benefit significantly from cost segregation because they contain many specialized features.
Examples include custom cabinetry, specialized plumbing for dental equipment, dedicated electrical systems, imaging room infrastructure, and custom operatories. These components may qualify for shorter depreciation periods because they are more closely related to equipment or specialized installations rather than the building structure itself.
Because of these features, dental office buildings can sometimes reclassify 20 to 35% of the building cost into faster depreciation categories.
That shift can create substantial deductions during the early years of ownership.
Bonus Depreciation Opportunities In 2026
Another factor that can increase the tax benefits of cost segregation is bonus depreciation.
Bonus depreciation allows businesses to deduct a large portion of qualifying assets immediately instead of spreading the deduction over many years.
Recent tax law changes restored 100% bonus depreciation for qualifying property placed in service after January 2025. When bonus depreciation applies, many of the assets identified in a cost segregation study can potentially be deducted in the year the building is placed into service.
For example, imagine a dentist purchases a building and a cost segregation study identifies $300,000 to $400,000 of assets that qualify for accelerated depreciation. A large portion of that amount could potentially be deducted in the first year.
This can significantly reduce taxable income in the year the property is acquired or completed.
Renovating Or Expanding A Dental Office Can Also Create Tax Benefits
Tax advantages are not limited to newly purchased buildings. Renovations and expansions can also create deductions.
Many interior improvements to commercial buildings qualify under Qualified Improvement Property rules. This allows certain upgrades to be depreciated faster than the standard building schedule.
Examples may include adding new treatment rooms, upgrading flooring, improving lighting, or redesigning the layout of the practice.
In some situations, dentists may also benefit from a concept called partial asset disposition. When parts of the building are replaced during renovations, the remaining value of the removed components may be written off.
Dental equipment and specialized buildouts may also qualify for Section 179 deductions or shorter depreciation schedules.
These rules can make practice upgrades more tax-efficient while modernizing the office.
Owning The Building Versus Leasing
While owning the practice building can offer tax advantages, it may not be the right decision for every dentist.
Leasing typically requires less upfront capital and provides flexibility if the practice may relocate in the future. It also shifts property maintenance responsibilities to the landlord. Dentists who are earlier in their careers may prefer to lease their practice space, while investing in other types of real estate.
Buying the practice building is often most attractive for dentists who have reached a stable stage in their practice and have a well-established patient base.
Real Estate As Part Of A Broader Financial Strategy
With planning, real estate ownership can be a powerful financial tool for dentists. Owning the building where your practice operates can provide substantial tax deductions. At the same time, it allows dentists to build equity in a property that supports the practice itself.
However, the decision to buy a building should always be evaluated alongside your practice goals, long-term location plans, and overall financial strategy.
For dentists exploring different real estate options, check out our webinar on real estate strategies for dentists, which provides a deeper overview of approaches.
At Virjee Consulting, we work with dentists and practice owners nationwide. Not just to identify deductions for this year’s tax bill, but to design a structure that supports long-term wealth outside of dentistry.
If you are wondering how real estate can fit into your financial plan, book a consultation with our team to help you evaluate the options.
