Many dentists struggle to find out a better balance between their personal and professional life. On one side, where some want to sell dental practice for personal good, some have other reasons like changing the living place or a health problem. In any case, a dental practice sale is usually opted and in every case, there is a need to keep a check on tax paying.
A better insight is possible by an example. Suppose if it is an asset on sale, then you can pay federal and state taxes which would make you 40 % of gains. What happens generally is the tax is counted on the entire amount of assets sold and the rate is also very high for both the sides. The reason behind this is the writing off or depreciation of the dental equipment in 5-7 years. It generates a token amount of basis at the time of selling.
Now if it is a corporate owner, then the highest corporate rate is applied on the gain. And if it is an individual who is leasing it to someone, the tax on former depreciation is 25 percent and gain is 20percent. The dental practices for sale also include things like patient records, accounts, finance and goodwill and it will be taxed at 20 %. A considerable tax liability results in a clear cut sale.
How an out-n-out sale occurs and what are the taxes responsibilities are important to be known. If its equipment, it is 40 % in gain. 20 % tax rate for gain on receivables; a 20 % rate on both records and real estate gain and 40 % goodwill.
These tax liabilities together can make a shocking figure in the process of dental practice sale and in order to put it off, there is a solution in Section 1030 tax free exchange.
Early in the 20th century, Section 1031 of the Internal Revenue Code was laid. It is possible to defer your taxes in case you buy “like-kind” property within a period of six months from the sale. The cases can be different for two time frames. First is the identification period in which the dentist is required to bring in notice 1-3 replacement properties. The time frame is 45 days only. Second is about the actual buying of property that should occur within six months after the decision of dental practices for sale.
The process of selling can have some or total assets tax-free. A complete exchange would mean that you are selling one dental practice and buying another. And in case it is lesser than sold ones, then a partial tax payment will be chargeable. A good example is selling a dentist’s real estate and then buying a house for income property. Conversely, if the house cost is more, no taxes are required.
Section 1031 tax-free exchanges provide much-needed compensation to the dentists who wish to keep their dental practices for sale. Since the rules are rigid and need to be strictly followed, it is wiser to have a skilled attorney to guide you through the selling process.