How do I handle equipment depreciation for medical devices and clinical equipment?
Medical equipment like imaging machines, dialysis units, dental chairs, and surgical instruments gets capitalized as a fixed asset rather than expensed in the year you buy it. The cost is then deducted gradually through depreciation over the equipment’s useful life as defined by the IRS under the Modified Accelerated Cost Recovery System (MACRS).
Most medical and clinical equipment falls into the 5-year or 7-year MACRS property class. Exam tables, dental chairs, sterilization equipment, patient monitors, and surgical instruments that meet the capitalization threshold all typically depreciate over that range. Certain heavy imaging equipment like MRI and CT machines can have longer recovery periods, sometimes up to 15 years depending on how they’re classified. The specific class depends on the equipment type and how it’s used, so your CPA should confirm the correct recovery period before you start depreciating a new purchase.
You do have options to speed things up. Section 179 lets you deduct the full cost of qualifying equipment in the year you place it in service, up to the annual limit. Bonus depreciation is another route that allows you to deduct a large percentage of the cost in year one. These accelerated methods can create meaningful tax savings in the year of a big purchase, but they also mean smaller deductions in future years. Whether it makes sense depends on your revenue, your tax situation that year, and your cash flow. That’s a conversation to have with your CPA before the purchase, not after.
Regardless of which depreciation method you choose, every piece of equipment needs to be tracked individually in a fixed asset register. Record the description, purchase date, cost, vendor, serial number, physical location, and the depreciation method being used. Serial numbers are especially important for insurance claims if equipment is damaged or stolen and for audit purposes if the IRS wants to verify your deductions.
For medical and dental practices with equipment spread across multiple locations, tracking gets more complex. Each asset needs to be tied to a specific location and entity. This is particularly true if you’re operating under multiple LLCs or have separate clinical, professional services, and holding company structures. When depreciation schedules are managed across entities, even small errors compound quickly.
One common mistake is expensing equipment purchases that should be capitalized. A $30,000 dental chair isn’t an office expense. It’s a fixed asset. Treating it as an expense overstates your costs in year one and understates them in subsequent years, which throws off your financial statements and creates cleanup work at tax time. Set a capitalization threshold (commonly $2,500, matching the IRS de minimis safe harbor election) and apply it consistently. Anything above that threshold gets capitalized and depreciated.
When equipment reaches the end of its useful life or gets replaced, record the disposal properly. Remove the asset and its accumulated depreciation from your books. If you sold it, record the sale price and any resulting gain or loss. Skipping this step leaves ghost assets on your balance sheet that don’t reflect what your practice actually owns.
Getting this right from the start saves hours of cleanup later. Our Orange County small business bookkeeping services include fixed asset tracking and proper depreciation setup so your books stay accurate and your tax preparer has clean records to work from.
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