When selling a dental, medical, chiropractic or veterinary practice, the real property is eligible for 1031 exchange tax deferral treatment given the real property is replaced. There are many reasons to relocate or sell a practice and the tax considerations should be evaluated with your CPA.
The components of the sale are itemized into real property. The original asset price plus the improvements less the depreciation taken determines the adjusted basis. The sales price less the adjusted basis and selling expenses determines the gain. A 25% recaptured depreciation is assessed on the aggregate depreciation taken over the years. As long as the sales value of the new real property is equal to or greater than the old property, 100% of the capital gain and recaptured depreciation can be deferred in a 1031 exchange.
Four primary 1031 exchange strategies:
- forward - the old property is sold before the purchase of the new property.
- reverse - the new property is acquired before the sale of the old property.
- build to suit or improvement - new property is improved either before or after the old property is sold.
- leasehold improvement - property already owned is improved either before or after the old property is sold.
Your CPA will determine whether or not there is a gain and depending upon the outcome will determine whether a 1031 exchange makes sense.