Faster write-offs for office buildings

May 1, 2004
Recently, I attended a seminar where the speaker indicated that I could write off part of my office building at a rate faster than the normal 39 years.

Charles Blair, DDS and John McGill, MBA, CPA, JD

Recently, I attended a seminar where the speaker indicated that I could write off part of my office building at a rate faster than the normal 39 years. I talked with my CPA, but he did not know anything about this. Can this be done and, if so, how?

Recent Tax Court cases have allowed doctors to segregate out certain building components that can be properly classified as personal property, rather than real estate, and depreciate them over a shorter period of time, says Bo Elliot, CPA, managing partner with Elliot & Warren, CPAs. In many cases, 30 to 40 percent of the building's overall costs can be eligible for a faster write-off resulting from a cost-segregation study, says Elliot. Moreover, doctors who have built or purchased an office building since 1986, but who have not claimed these accelerated building write-offs, can claim them on this year's return, if properly handled, Elliot points out. For more information on determining if a cost-segregation study would be cost-effective for you, contact Elliot at (704) 333-2905 or email him at [email protected].

I am planning to sell my current practice and move to a new location closer to where I plan to retire. However, since retirement is five to seven years away, I want to purchase a new practice and operate it during the interim. How can I minimize taxes on the sale of my current practice?

You could qualify for a little-known, tax-saving strategy that could save you thousands of dollars, says Blake Hassan, CPA, JD, a partner with McGill and Hassan, P.A., who specializes in sophisticated tax and estate-planning strategies for doctors selling their practices. While many doctors are aware that the law allows a tax-free exchange of real-estate properties, most do not understand that a tax-free exchange of practice assets is also possible under Section 1031 of the tax law, Hassan adds.

To accomplish this, the allocation of the purchase price between the assets sold and purchased is critical. The tax law looks at the underlying assets to determine how much of the sales price can qualify for this tax-free exchange treatment. Doctors must make sure that amounts allocated to assets purchased are lined up with the allocations of the practice assets sold to maximize the amount of the practice sale. This then qualifies as a tax-free exchange, says Hassan. For more information, send a stamped ($0.60), self-addressed envelope to Blair/McGill and Company, 2810 Coliseum Centre Drive, Suite 360, Charlotte, NC 28217, and request "Practice Tax-Free Swaps Possible." Contact Hassan by phone at (704) 424-5450.

My practice has maintained a profit-sharing plan for many years. Unfortunately, my staff costs continue to grow, and I am now receiving less than 60 percent of the total amounts contributed to the plan. I have heard that there are several options available to help control staff-funding costs so that retirement funding will be cost-effective for me. What are they?

There are numerous strategies available to control staff funding costs under the new law, says Jason Arnold, East Coast District Manager of PenSys, Inc., a retirement plan firm specializing in assisting dentists on a nationwide basis. For example, many practices have added a 401(k) feature to their profit-sharing plan. This reduces the practice's profit-sharing contribution by having employees make part of the contribution from their own funds. In many cases, doctors also have employed their spouses and designed the plan to make them eligible for maximum participation to increase the overall funding available to the doctor's family, says Arnold. Contact Arnold by phone at (888) 440-6401.

In situations where the doctor has a significant age advantage over the staff, other cost-saving strategies are available. Using a cross-tested, or age-weighted, plan design, retirement-plan allocations can be based on employees' ages, as well as salary, allowing doctors to receive a larger share of the contribution allocation. For further information, send a stamped ($0.60), self-addressed envelope to Blair/McGill and Company, 2810 Coliseum Centre Drive, Suite 360, Charlotte, NC 28217 and request "Doctors Surveyed on Reducing Staff-Funding Costs."

Dr. Blair is a nationally known practice-profitability consultant and is a member of the American Academy of Dental Practice Administration. Mr. McGill is a tax attorney, CPA, and MBA, and is the editor of the Blair/McGill Advisory, a monthly newsletter helping dentists to maximize profitability, slash taxes, and protect assets. The newsletter ($199 a year) and consulting information are available from Blair/McGill and Company, 2810 Coliseum Centre Drive, Suite 360, Charlotte, NC 28217, or call (704) 424-9780.

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