Not long ago, I sat down with a veterinarian client who had just expanded her clinic to include an in-house surgical suite. The buildout was significant: new plumbing, advanced imaging equipment, and specialized flooring. But she was frustrated that the upgrades felt like a financial drag despite her clinic’s growing revenue.
When I asked whether she’d explored a cost segregation study, her response was what I often hear: “That’s for big hospitals or developers, right?”
Veterinary facilities often miss out on the tax-saving potential buried in their property improvements. With the right analysis, many of the improvements (exam room cabinetry, specialized HVAC systems, even kennel areas) can be reclassified for faster write-offs. And thanks to recent updates in bonus depreciation rules, the timing has never been better.
If you own or operate a veterinary facility and you’re not taking a hard look at your depreciation strategy, you may be missing out on tens of thousands in first-year tax savings.
Why Veterinary Clinics Are Ideal for Cost Segregation
Veterinary properties are uniquely positioned for accelerated depreciation due to their hybrid nature. They combine elements of medical facilities, office space, and hospitality environments, all within a single building. That means a high percentage of assets can qualify for shorter depreciation lives under a properly executed cost segregation study.
How a Veterinary Clinic Can Unlock Major Tax Savings
Here’s a scenario that reflects a common outcome for veterinary owners who invest in new facilities:
- A veterinary hospital began construction in 2023 and was placed in service in March 2025, with a total cost basis of $1.8 million.
- Initially, the owners planned to depreciate the entire value over 39 years using the standard straight-line method.
- A detailed cost segregation study reclassified over 30% of the basis (approximately $540,000) into 5-, 7-, and 15-year property.
- Because the building was placed in service after January 19, 2025, the reclassified assets qualified for 100% bonus depreciation.
- The clinic took over $500,000 in first-year deductions, reducing its federal tax liability by nearly $200,000.
- The owners reinvested those savings into hiring two vet techs and launching a preventive care program, which in turn increased patient volume and client retention.
This kind of result isn’t unique; it’s a strong example of how real estate strategy and tax planning intersect to support operational growth in a veterinary setting.
Key Tax Benefits and Cash Flow Impact
The financial implications are significant. By accelerating depreciation, veterinary clinic owners can shift tens or hundreds of thousands of dollars in deductions into the early years of property ownership or renovation. This reduces current-year taxable income and improves cash flow — that’s capital that can be reinvested directly into practice growth.
Thanks to the 2025 legislative changes, bonus depreciation is once again at 100% for qualified property acquired and placed in service after January 19, 2025. That means assets reclassified through cost segregation can often be fully deducted in the first year.
For a typical small clinic, this could mean $70,000 to $120,000 in first-year deductions. For larger veterinary hospitals or multi-site operations, the benefits scale quickly, often reaching six figures or more in deferred tax liability.
Commonly Reclassified Assets in Veterinary Clinics
A well-executed cost segregation study will identify and segregate components that qualify for shorter recovery periods. In veterinary settings, those often include:
- Built-in exam tables, sinks, and cabinetry. These are considered removable or specialized medical-use items and typically qualify for 5- or 7-year depreciation.
- Electrical and plumbing systems. Systems that serve specific veterinary equipment can be separated from general building infrastructure for accelerated depreciation.
- Specialty lighting. Task lighting in exam or surgical rooms is often reclassified as short-life property due to its specific use.
- Kennel and boarding areas. Durable finishes and built-ins in animal holding areas can be depreciated over 15 years as land improvements.
- Exterior improvements. Signage, client parking, fencing, and walkways typically fall under 15-year property for depreciation purposes.
- Landscaping and irrigation systems. Outdoor pet areas with turf or irrigation are usually classified as 15-year property and eligible for bonus depreciation.
When a Cost Segregation Study Makes the Most Sense
Cost segregation isn’t just for new construction. It’s highly applicable in several scenarios:
- Purchase of an existing clinic building, particularly if over $500,000
- Renovation or expansion projects like surgical suites, boarding facilities, or equipment upgrades
- Ground-up development of a new facility
- Retrospective studies, especially within the IRS’s look-back window (often up to three years, depending on prior filings)
For smaller, single-location practices, studies tend to make economic sense once total property investment exceeds $500,000. For regional veterinary groups or roll-up strategies, cost segregation becomes a recurring value lever across every acquisition.
Choosing the Right Partner for a Veterinary Property Study
Not all cost segregation providers are created equal. The best results come from teams that blend tax technical depth with engineering-based asset classification. That means understanding not just IRS guidance but also the functional realities of a veterinary space: how it’s used, how systems are integrated, and what qualifies under the most recent definitions of personal property and Qualified Improvement Property (QIP).
Generic studies often leave money on the table. Worse, aggressive or non-compliant studies risk IRS scrutiny and audit exposure. What you want is a provider who delivers detailed reporting, audit-ready documentation, and transparent methodology.
Turning Tax Savings Into Growth for Veterinary Practices
One of the best parts of cost segregation is what it enables. Tax savings aren’t just about spreadsheets; they free up capital that can be reinvested into the business.
That veterinarian I mentioned earlier? After completing her study, she redirected over $90,000 in tax savings toward the purchase of a new digital radiography suite. It allowed her to offer faster diagnostics, improve care outcomes, and boost revenue.
For many clinic owners, this is the path to upgrading equipment, hiring staff, or even expanding into a second location.
If you’re serious about maximizing the financial efficiency of your facility, and especially if you’re considering renovations or acquisitions, cost segregation for veterinary clinics is a strategy worth prioritizing. A team like R.E. Cost Seg can help ensure you get the full value out of your property investments while staying compliant and audit-ready.
Ready to begin your tax savings journey?
