Asset purchase of practice allows tax deductions

Learn about the best option when purchasing a practice.

Q: I'm negotiating with a retiring doctor to purchase his practice by buying the stock. My accountant tells me that I won't be able to take a tax deduction for my down payment or subsequent payments to the bank. Can I structure the purchase so parts of it will be deductible?

A: You are describing a stock purchase method of acquiring a practice. In this transaction, you will acquire all assets and liabilities of the practice. Your accountant is correct that the purchase of stock is not deductible.

A more favorable alternative is an asset purchase, in which you limit your exposure to liabilities and more clearly define what you are buying. Generally, a practice purchase of this type consists of tangible (fixed assets and equipment) and intangible (goodwill). The tangible assets you purchase usually can be depreciated over a 5- to 7-year schedule, but some may be deducted fully the first year of purchase.

Send your money management questions to Answer provided by Steven Podnos, MD, MBA, CFP, principal of Wealth Care LLC in Merritt Island, Florida.