Buying a dental practice is one of the largest financial transactions most dentists will ever undertake. What many buyers do not fully anticipate is how significantly the tax treatment of that transaction can affect the total cost and long-term financial outcome. Tax law is not static, and the way a purchase is structured under current rules can either create meaningful advantages or leave substantial money on the table depending on how well-informed the buyer is going into the deal.
Understanding the tax landscape is not optional for anyone serious about acquiring a practice. At Wingspan Transitions, our buyer resources are designed to ensure that dentists entering a transaction are equipped with the right advisors and the right questions before they sign anything. The IRS requires both buyers and sellers to file Form 8594, the Asset Acquisition Statement under Section 1060, in any purchase involving a group of assets constituting a business. How the purchase price is allocated across asset classes on that form can have a significant impact on both parties’ tax positions.
Asset Allocation and Why It Matters
When a dental practice is sold, the purchase price must be divided among the various assets being transferred. These may include equipment, patient records, a non-compete agreement, and goodwill. The IRS requires this allocation follow a specific method, and the category each dollar falls into determines how it is taxed for the seller and how quickly it can be deducted by the buyer.
Because buyers and sellers frequently have opposing interests when it comes to allocation, how these negotiations play out has real financial consequences for both sides. Several factors consistently shape how allocation conversations unfold in dental transactions:
- Equipment and tangible assets: Buyers benefit from faster depreciation, while sellers may face ordinary income treatment on recaptured depreciation
- Goodwill: Generally taxed at capital gains rates for sellers and amortized over fifteen years by buyers, making it a common area of negotiation
- Non-compete agreements: Treated as ordinary income for sellers and amortized over fifteen years for buyers, similar to goodwill
- Patient records and charts: Often allocated conservatively, but still subject to the residual method under Section 1060
Working with a dental-specific CPA before a purchase agreement is signed is essential, not an afterthought.
Bonus Depreciation and Section 179
Federal tax law has offered buyers significant first-year deductions on equipment and qualifying assets through bonus depreciation and Section 179 elections. These provisions have changed multiple times in recent years. Bonus depreciation, which allowed buyers to expense 100 percent of qualifying costs in year one during its peak, began phasing down after 2022 and has continued to decrease annually.
Buyers who understood how to structure a purchase to maximize these deductions in prior years captured considerable tax savings. The phase-down makes it more important than ever to work with advisors who track these changes and can model the after-tax cost of a transaction under current law before a deal closes.
Entity Structure and Long-Term Implications
How a buyer structures ownership of a new practice has lasting tax implications that extend well beyond the year of purchase. Pass-through structures generally allow practice income to flow to the owner’s personal return, while C corporations face a separate layer of taxation. Changes in federal rates over time can shift the relative advantage of each structure.
For dentists planning a future sale or a partnership with a DSO down the road, entity structure also affects how any eventual practice transition is taxed. Decisions made at the time of purchase can narrow or expand the options available years later when it is time to exit.
What Sellers Should Know
Tax law changes affect sellers just as significantly as buyers. The allocation of purchase price to goodwill versus equipment affects whether proceeds are taxed as capital gains or ordinary income. Timing matters as well. A seller who understands the current rate environment and structures a transaction accordingly may net meaningfully more than one who accepts a standard allocation without reviewing the tax consequences first.
Capital gains rates, depreciation recapture rules, and installment sale provisions all interact in ways that a qualified CPA should walk through with any seller before closing.
Connect With Wingspan Transitions
Tax considerations in a dental practice purchase are complex, and this overview is meant to highlight key areas of awareness rather than constitute specific tax or legal advice. Every transaction is different, and the right outcome depends on current law, the specific assets involved, deal structure, and individual circumstances. Our team at Wingspan works alongside buyers, sellers, and their advisors throughout the transaction process to ensure every piece of a deal is approached with care.
If you are preparing to buy or sell a dental practice and want to make sure you have the right professionals in your corner, reach out to us today to schedule a consultation.