Series: The Advantages of Owning Commercial Property V

owning a dental practice

This 5 part educational series will begin with the advantages of owning commercial property. Please follow us in the coming weeks to learn about the additional benefits of being a property owner.

Most business owners eventually confront the question of whether to purchase or lease their office space. There are many factors to consider in making this important decision. For new dental practitioners who are uncertain of future space needs and want to ensure maximum cash flow as they grow their business, leasing may be a wise option. But for new or seasoned practice owners with a strong financial profile, a clear picture of future growth, and the ability to take advantage of the tax benefits of ownership, a commercial real estate purchase can provide a solid foundation for growing the business.

Tax Advantages

Owning your practice allows you to depreciate your asset while writing off all of the mortgage interest paid during the year. In addition, you can enjoy the benefits of several tax deductions designed for the business or property owner:

–        Section 179. IRS Tax Code Section 179 allows deductions for purchases of equipment and furnishings that are put into service the same year they are purchased. For the past three years, Congress has granted a generous deduction of $500,000, which can be a significant contribution towards offsetting the cost of the property purchase.

–        Cost Segregation. This method of depreciation allows you to depreciate the building and components such as wiring and lighting over a 39-year period, offsetting the cost of building maintenance for a significant amount of time.

–        1031 Exchange. Investment properties used in a trade or business can be sold and the funds applied towards the purchase of a similar or like property within 180 days of sale, without reaping any tax consequences. The purchased property must be of equal or higher value to avoid a tax penalty. This provides leverage for a practitioner to move her practice to a larger facility as the practice grows, without being hindered by tax penalties.

Before purchasing commercial real estate, be sure to consult with your CPA or financial advisor to fully understand how a purchase would affect your particular circumstances.