What a Dental Office TI Allowance Actually Covers, and What It Leaves You to Pay For

Modern Northwest · Published September 25, 2026

A tenant improvement allowance pays for work that becomes part of the building: walls, ceilings, flooring, lighting, HVAC, restrooms and general plumbing and electrical. It generally does not pay for the equipment a dental practice owns and takes with it, such as chairs, delivery units, X-ray machines, sterilizers and cabinetry installed as equipment. The contested middle is the dedicated plumbing, air, vacuum and electrical that connects that equipment to the building, and in a dental office that middle is a large share of the job. Negotiate where that line falls before you sign.

If you want the basics first, what an allowance is, typical per-square-foot ranges and how to negotiate more, that is in our tenant improvement allowance guide. This post is the dental layer: which items land on which side of the line, and why your CPA will care where they land.

What is the line between an improvement and equipment?

The clearest government statement of it comes from the federal government's own leasing program. The GSA describes tenant improvements as the finishes and fixtures that typically take space from the shell condition to a finished, usable condition, and says the allowance may be used only to pay for items that are real property, or which become real property when attached or affixed to the building. It is not available to fund personal property such as furniture or computers. Private leases are negotiated, not governed by GSA rules, but most landlords draw the line in the same place.

The legal idea behind it is the trade fixture. Cornell's legal encyclopedia defines a trade fixture as something attached to property rented by the lessee which they are entitled to take with them after the lease ends. A dental chair bolted to a floor box is attached, and it still leaves with the practice.

Dental build-out items, sorted

A negotiating map, not a rule. Your lease language decides it. The middle column is where dental offices spend far more than ordinary offices.

The middle column is where the money is. The IRS's own cost segregation guide describes the same split for tax purposes: dedicated piping, valves and hook-ups by which machinery and equipment is connected to the building's plumbing, and dedicated electrical outlets and wiring by which equipment is connected, can be treated with the equipment, while electrical outlets of general applicability are part of the building. A landlord funding the allowance tends to see those dedicated lines as your equipment cost. A good lease says, in writing, which way they fall. For what those lines actually are, see the dental plumbing and rough-in guide.

Does the section 110 construction allowance apply to a dental practice?

Possibly, and it is worth asking your CPA. Section 110 of the tax code covers construction allowances on a lease of retail space for 15 years or less, for improvements that revert to the landlord when the lease ends. The regulation defines retail space as real property used in the business of selling tangible personal property or services to the general public, and its example list includes doctors, lawyers and accountants. Dentists are not named, so do not assume it applies without professional advice.

How are the improvements depreciated?

IRS Publication 946 lists qualified improvement property as 15-year property. It is defined as an improvement to an interior portion of a nonresidential building, placed in service after the building itself, excluding enlargements, elevators and escalators, and the internal structural framework. The same publication confirms that you can depreciate permanent improvements you make to business property you rent from someone else. Equipment is depreciated on its own schedule. The practical point for a dentist: how the build-out is split between improvements and equipment on the invoices affects the tax treatment, so ask your contractor for a cost breakdown your CPA can use.

How does an allowance show up in lease accounting?

Under the ASC 842 lease standard, Deloitte explains that an allowance paid to the tenant is generally treated as a lease incentive, a reduction in lease payments when calculating the lease liability. Whether that applies depends on who owns the improvements, and Deloitte lists factors such as whether the tenant is permitted to alter or remove the leasehold improvements without the landlord's consent, and whether the improvements are unique to the tenant. Dental improvements are often unique to the tenant. That is a question for the practice's accountant, not the contractor, but it is worth raising before the lease is final.

How to make a dental allowance stretch

• Price the space before you sign. The allowance is a number; the build-out is a scope. A real estimate tells you the gap. Our dental build-out cost guide shows what drives it.
• Get the middle column in writing. Whether dedicated plumbing, vacuum and imaging circuits count toward the allowance is the biggest single swing in a dental lease.
• Watch for a change of occupancy. A former store can bring restroom, accessibility and ventilation work that eats the allowance before any dental work starts. See converting a retail space into a dental clinic.
• Match the allowance schedule to the build. Check when your lease says the landlord pays out the allowance, and line that up against the build-out timeline.

Frequently asked questions

The bottom line

A TI allowance funds the building, not the practice's equipment. In a dental office the fight is over the dedicated plumbing, air, vacuum, electrical and shielding that tie the equipment to the building, so settle that line in the lease, price the space before you sign, and give your CPA a cost breakdown that separates improvements from equipment. This is general information, not tax or legal advice.

Modern Northwest builds dental offices in Portland and Vancouver, WA, and we price spaces before our clients sign so the allowance negotiation starts from real numbers. Reach out for a free walkthrough.