Thursday, December 1, 2011

Is There a Tax Deduction for Buying Dental Practice?

I am looking to purchase a practice and the building.  The appraisal on the building is pending, but assuming it seems fair, I will purchase both.  I have been approved for 100% financing for the practice 10 yr. term, 5.95% through Wells-Fargo and am applying at another bank as well to compare.  The building numbers depend on the amount I put down.

I have enough for over 25% down if I need it, but here is where I need help. I have already paid income tax on all the money in my savings that I would be using for the down payment, but the down payment for the building would be a tax deductible expense.  How can I work this where I can make the down payment without using after tax dollars or can I pay myself back the amount I put down for the building without having to pay tax on it (for example, if I put 50K down for the building with my after tax savings, can I later pay myself back 50K from the practice without having to pay tax on that 50K)?

Thanks for any help.  It is greatly appreciated. 

The down payment won't be a deduction; the cost of the building will lend itself to deductions for about 39 years, excluding the land that isn't deductible and a few other costs with different Tax lives.

Does that help?

It seems then tax-wise it would be smartest to put the least amount possible down, since that is after tax money.  However, a larger down payment will lower the interest rate by close to 1%.  Tough decision. 

Yep, tough decision and it's a cash flow/cash use decision as well...

The other thing to consider is how you allocate the price to each component, practice and real estate. Talk to your CPA about which might be more beneficial, higher practice price or higher real estate price and talk to the lenders about how that might impact financing.

Sometimes you can get pretty creative when buying both together under the right situation.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at

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