Medical, Dental and Veterinary Practice 1031 Exchange
Posted by Andy Gustafson on Mon, Aug 16, 2010
When selling a medical, dental, chiropractic, optometry, podiatry, psychiatric, psychology or veterinary practice, consideration should be given to the tax implications. One way to defer capital gain and recaptured depreciation taxes is through a 1031 exchange.
- Ask your accountant to itemize the practice into real and tangible and intangible personal property.
- Decide whether personal property will be replaced with like-kind or similar assets.
Perhaps only the real property such as the office building will be exchanged for a vacation property that after two years will be converted into a personal residence.
If a practice is being relocated, then it may make sense to replace the tangible and intangible personal property. Customer lists, trademarks and trade names are eligible for 1031 tax deferral as long as they are replaced with a customer list, trademark and trade name.
If a veterinary practice is being sold with the intent to relocate, then specialized vehicles and equipment, if owned can be exchanged for like-kind specialized vehicles and equipment. It all depends upon whether there is a gain to defer.
These exchanges follow the same 1031 exchange rules including completion of the exchange within 180 calendar day’s post first closing. The new practice can be purchased first in a 1031 reverse exchange or the old practice can be sold first as in a 1031 forward exchange.
Conclusion
There are many reasons to sell a practice, perhaps it is retirement, relocation or partnership buyout. If it is the latter, a year in advance, the title for the assets is dropped to the individual partners the better the facts are to support the 1031 exchange. Partnership interests are not eligible for 1031 consideration. The title can also be changed to reflect the individual and the partnership as to their respective interests in the partnership. This enables the individual to exchange their property with the partnership. Always seek the guidance of your accountant and lawyer.