I am buying a dental practice and its building. How should we allocate the price?
A dental practice purchase bundled with an owned building is two asset analyses inside one negotiated price. The buyer needs support for practice equipment and goodwill as well as land, building, and any separately owned improvements before the agreement fixes the allocation.
The owner's question
A practice buyer is committing capital to an established patient business and the real estate it occupies. The allocation will shape the buyer's opening tax basis and the seller's transaction reporting.
A dental practice purchase bundled with an owned building is two asset analyses inside one negotiated price. The buyer needs support for practice equipment and goodwill as well as land, building, and any separately owned improvements before the agreement fixes the allocation.
Identify exactly what each entity buys
Dental transactions often involve a professional practice entity and a separate real estate holding entity. Map the legal buyer of each asset to the seller, deed, bill of sale, financing, and operating agreement. A lender's appraisal of the building may not resolve the value of operatories, computers, patient records, contracts, or practice goodwill.
If the buyer is acquiring stock or membership interests instead of assets, the federal basis consequences may be very different. The first tax question is transaction form; only then should the parties negotiate asset categories and any Form 8594 reporting.
Build an allocation that both returns can defend
Form 8594's instructions describe the residual method for covered business asset transfers. The practice and building schedules should reconcile to total consideration, including relevant liabilities and transaction costs. Keep a bridge from the agreement to opening balance sheets and depreciation records; inconsistent schedules invite a correction after closing.
Land is not depreciable. Building assets begin depreciation when placed in service under Publication 946. A later cost segregation study cannot repair an unsupported allocation of the total price between practice and real estate.
Get the tax review before the allocation exhibit is signed
Provide the draft purchase agreement, appraisal, practice equipment list, prior fixed-asset schedules, lease terms, financing documents, and entity diagram. AE can model the buyer's basis and the seller's reporting positions, flag mismatches, and coordinate the final schedules with deal counsel and the return preparers.
The result should be a signed-off allocation and a closing checklist, not a generic depreciation estimate. State professional-practice ownership rules and local transfer costs also require separate counsel and state-tax review.
Primary tax sources
Related AE Tax guidance
Talk Through Your Situation
Discuss your priorities, upcoming decisions and whether a study or advisory engagement fits. Detailed analysis, implementation or filing work follows an agreed written scope.
Before buying a practice and its building
This guide can help you identify questions. If several decisions interact, review practice-owner tax advisory to define the professional work needed.
For an initial conversation, summarize the purchase agreement stage, ownership structure, allocation questions and closing date. Arrange secure document delivery with the team before sharing detailed financial records.
Read a relevant documented planning case. Review the case facts and status; a recommendation or engagement scope does not establish completed implementation or realized savings.
Strategic Tax Advisory: $7,800. Complex Tax Advisory: $9,800. Returns, amendments, cost segregation and additional work are separately scoped. Confirm deliverables, implementation responsibilities and the support period in your written agreement. Review fees and engagement scope.
Planning for your next ownership decision
What a pre-closing allocation review should deliver
The deliverable should connect the proposed transaction to the buyer's opening records and the seller's reporting. Each party should retain its own advice where interests differ; reviewing a transaction does not mean one adviser represents both sides.
| Workstream | Written output to request |
|---|---|
| Transaction structure | Identify asset acquisition, equity purchase or other arrangement, the legal buyers and sellers, tax classifications and any proposed tax election. |
| Practice assets | Separate equipment, inventory, receivables, contracts and goodwill where relevant. Support values and avoid counting an item in both the practice and property price. |
| Real estate | Identify land, building, separately owned improvements and the property buyer. Reconcile appraisal assumptions, deed, lease and closing statement. |
| Consideration bridge | Reconcile the agreement with relevant liabilities, transaction-cost treatment and any contingent payment terms. Identify amounts still subject to later adjustment. |
| Reporting handoff | Assign allocation reporting, opening basis, depreciation, applicable Form 8594 and any later supplemental reporting to named professionals. |
An equity purchase does not automatically create new depreciable inside basis in all practice assets. A separate property purchase does not automatically belong in the same taxpayer's depreciation schedule. Resolve these differences before comparing first-year deduction estimates.
Questions before signing the allocation exhibit
- Does each schedule reconcile to the negotiated price and closing documents?
- Who supports the values, and which appraisal or asset records are still missing?
- What happens if a later earnout or purchase-price adjustment changes consideration?
- Who reviews seller recapture, buyer recovery periods and state reporting?
- Which filings and legal documents are outside the quoted advisory scope?
Bring the draft agreement, entity chart, asset list and expected closing date to a practice-and-building acquisition review. Arrange secure document delivery before sharing financial or patient-related material; patient records are not needed for an initial tax-scope conversation.