Tax Considerations When Buying or Selling a Dental Practice

dental practice

Whether you’re a seasoned dental professional looking to expand your business or a new dentist ready to embark on your career journey, buying or selling a dental practice is a significant step. While it is an exciting venture, it’s essential to understand the tax implications that come with such a transaction to save money, minimize risks, and ensure compliance with tax laws. 

This article will discuss some key tax considerations that both buyers and sellers should keep in mind when entering the dental practice market.

Tax Considerations for Buyers

1. Asset vs. Stock Purchase

When buying a dental practice, you have the option to structure the transaction as an asset purchase or a stock purchase. In an asset purchase, you are buying the tangible and intangible assets of the practice, such as equipment, furniture, patient records, and goodwill. In a stock purchase, you are buying the shares of the corporation that owns the dental practice.

From a tax perspective, buyers generally prefer an asset purchase because it allows them to allocate the purchase price to the assets being acquired, which can result in more significant tax deductions through depreciation and amortization. Additionally, an asset purchase can protect the buyer from inheriting any unknown liabilities or tax issues from the seller’s business.

2. Purchase Price Allocation

Properly allocating the purchase price among the assets being acquired is crucial for maximizing tax benefits. The IRS requires the purchase price to be allocated among the assets based on their fair market value. This allocation will determine the depreciation and amortization deductions available to the buyer.

It’s essential to work with a professional appraiser or accountant to establish the fair market value of the assets and ensure the correct allocation. In some cases, the IRS may challenge the allocation, and having a professional valuation can provide support for your position.

3. Financing and Loan Interest Deduction

If you’re financing the purchase of a dental practice, it’s essential to understand the tax implications of the loan. Generally, the interest paid on a loan used to acquire a dental practice is tax-deductible. However, the loan must be secured by the dental practice assets for the interest to be fully deductible.

4. Due Diligence and Tax Compliance

Before closing the acquisition, it’s crucial to perform due diligence on the dental practice’s tax compliance. This includes reviewing the practice’s tax returns, payroll taxes, and sales tax filings. Failure to identify and address any compliance issues can result in significant tax liabilities for the buyer.

Tax Considerations for Sellers

1. Capital Gains Tax

When selling a dental practice, the proceeds may be subject to capital gains tax. This tax is levied on the difference between the selling price and the seller’s tax basis in the practice’s assets. The tax rate will depend on the seller’s income level and the holding period of the assets.

Sellers should consult with a tax advisor to determine their tax basis and identify strategies to minimize capital gains tax. This may include structuring the sale as an installment sale, which allows the seller to defer some of the capital gains tax over several years.

2. Asset vs. Stock Sale

As mentioned earlier, buyers often prefer an asset sale due to the tax benefits. However, sellers may prefer a stock sale because it can result in lower capital gains tax and avoid double taxation. In a stock sale, the gain is generally taxed at the lower capital gains rate, whereas an asset sale may result in some of the gain being taxed at the higher ordinary income tax rate.

3. Depreciation Recapture

When selling a dental practice, the seller may be subject to depreciation recapture tax on the assets that have been depreciated. This tax is levied on the difference between the selling price of the assets and their adjusted tax basis. The depreciation recapture tax rate is generally higher than the capital gains tax rate.

To minimize depreciation recapture tax, sellers should consider strategies such as a like-kind exchange or deferring the sale of assets that have been depreciated until they have been held for more than one year.

4. Healthcare Tax

Sellers of a dental practice may also be subject to the healthcare tax, which is a 3.8% surtax on net investment income. This tax applies to individuals with modified adjusted gross income over $200,000 and married couples filing jointly with a modified adjusted gross income over $250,000. The proceeds from the sale of a dental practice may be considered net investment income, subject to the healthcare tax.


Buying or selling a dental practice can be a complex process with significant tax implications. It’s essential to work with a professional accountant or tax advisor to ensure compliance with tax laws, maximize tax benefits, and minimize tax liabilities. By understanding the tax considerations involved in buying or selling a dental practice, you can make informed decisions and ensure a successful transaction.

Are you selling your dental practice? Then look no further than Ash Dental CPA! We offer accounting services for dental professionals who want to maximize their tax savings and financial success when selling their practice. Our team of experienced CPAs and tax professionals specializes in working with dental professionals, providing personalized tax planning strategies to help you keep more of your hard-earned money. Let us help you start taking control of your financial future! Contact us today to schedule an appointment!