The letter of intent shows up, and somewhere on page two is a line that says “asset purchase.” Most selling dentists skim right past it because it reads like paperwork, but that one line decides which parts of your price are taxed at capital gains rates and which parts come back as ordinary income.
It also decides which side of the table keeps the old liabilities. A lot of the time, the structure isn’t even on the seller’s radar. You were just trying to get the deal done.
We sit with sellers on this before they sign, because by the time the purchase agreement is drafted, the structure is usually settled. So let’s start with the difference between asset sale vs stock sale of a dental practice structures actually are.
Asset Sale vs Stock Sale Of A Dental Practice: The Structural Difference
In an asset sale, the buyer purchases the pieces of your practice. In a stock sale, the buyer purchases your company, pieces included.
We like the IKEA box version. In an asset sale, the buyer shows up with an empty box (their own new entity) and buys the components: the chairs, the CBCT, the patient records, the goodwill. Your old entity is left empty and eventually closed. That’s why buyers in an asset deal end up with a brand new EIN.
In a stock sale, you hand the buyer the whole box. The entity, the EIN and the contracts stay put, and the new owner simply replaces you as the shareholder and picks up exactly where you left off.
We see stock sales rarely in dental. When one does come up, it’s usually in a state like New York, where setting up a new entity and getting credentialed with insurance plans drags on for months, so moving the existing company over is the faster path. Everywhere else, asset sales are the default, and the reasons sit mostly on the buyer’s side. We’ll take those next.
Why Dental Practice Buyers Almost Always Push For An Asset Sale
Buyers push for an asset sale because it hands them fresh write-offs and leaves your history with you.
Let’s start with the tax side. The IRS treats the sale of a business as a sale of each asset, and both sides have to split the price the same way, working down a set order of asset types, with whatever is left over landing in goodwill. That’s the IRS guidance on the sale of a business, and the same split sets the buyer’s basis, meaning the value the IRS lets them depreciate from.
So the equipment you wrote down years ago gets a new starting value in the buyer’s hands. In a stock sale, the buyer inherits the company’s existing basis, which for a practice you’ve run for a decade is mostly used up. We tell buyers the same thing every time: with a stock purchase, you very rarely see a tax benefit, because the seller already used it.
Then there’s liability. The attorneys we work with like the slip-and-fall example. In an asset deal, a slip-and-fall in the lobby a week before closing can generally be kept with the seller’s entity. In a stock deal, the buyer owns the company that owns that problem, and has to rely on indemnification language to push it back.
Why Dentist Sellers Often Prefer A Stock Sale
Sellers like stock sales because, for the right entity, more of the gain lands in capital gains instead of ordinary income.
When you sell stock in a corporation, you usually realize capital gain or loss. For an S corporation owner, that can turn equipment value that would have been recapture in an asset sale into gain on your shares.
That advantage depends heavily on how your practice is set up:
Single-member LLC with no corporate election. The IRS treats it as disregarded from its owner, so selling it is an asset sale for income tax no matter what the paperwork calls it. If your LLC elected S corporation status, skip to the S corporation line.
Multi-member LLC taxed as a partnership. Selling your interest is generally capital, but Publication 541 lists depreciation recapture among the items that still come out as ordinary income.
S corporation. If you’re an S corporation, this is where a stock sale can actually change your tax bill.
C corporation, including an older PC that never elected S status. An asset sale here generally gets taxed twice: once at the corporation, then again when the money comes out to you as a liquidating distribution. Sellers in this spot have the strongest reason to want a stock sale.
So before you argue for a stock sale, make sure you own something a stock sale helps. Then look at how the bill itself gets built, which is what the next section covers.
Each Structure Splits The Seller’s Tax Bill Differently
In an asset sale, your bill is built line by line from the allocation. In an S corporation stock sale, it’s mostly one number: gain on your shares.
Think of the asset sale as a Walmart receipt. Everything you put in the basket gets its own line, and Publication 544 treats each asset as sold separately, so each line follows its own tax rule.
Goodwill and patient records you built yourself are generally capital gain, and if you’ve owned the practice more than a year, it’s long-term, per IRS Topic 409. Equipment and computers you depreciated come back as ordinary income up to the depreciation you took, and supplies are ordinary income too.
Your non-compete gets its own line too. Money allocated to a non-compete is generally taxed as ordinary income to you, because you’re being paid to stay out of the market, so keep it separate from goodwill and keep it modest.
That’s why the allocation fight matters so much. Buyers want more of the price on equipment, because they can write it off faster, and sellers want more on goodwill. A goodwill-heavy split only holds up if your practice has the patient base and reputation to back it, because the IRS can reallocate a split that doesn’t match reality and come back for the tax with penalties and interest.
Both of you report the final split on Form 8594. If you agree on the allocation in writing in the purchase agreement, the tax code makes that agreement binding on both buyer and seller, which is one more reason to settle it early.
We see this in a lot of doc-to-doc deals. When we ask about the allocation, the answer is usually something like, “they said some numbers and some splits, and I didn’t really care as long as I got my price.” The next surprise usually sits inside the equipment and goodwill lines, and it has a name.
Depreciation Recapture Is The Number Most Sellers Don’t See Coming
Depreciation recapture is the IRS taking back, as ordinary income, the write-offs you already enjoyed on assets you’re now selling at a gain.
Publication 544 applies recapture to property that has been subject to depreciation or amortization. That second word matters if you bought your practice from someone else.
Purchased goodwill is amortized over 15 years under section 197. So if you bought your practice, part of your goodwill gain is recapture of the amortization you’ve claimed since, and that part is taxed as ordinary income. Sellers who assume goodwill is all capital gain are often surprised by the projection.
Real estate is its own line. If your building sits inside an S corporation or LLC practice entity, the part of the building’s gain that comes from depreciation you took is taxed at up to 25%.
That 25% is a ceiling, and it only applies to the building. Recapture on your chairs and equipment is still ordinary income. Inside a C corporation, the building’s gain is taxed at the corporation instead. That brings us to a structure some buyers offer as a middle ground.
What Is An F Reorganization, And Does It Give You Stock-Sale Treatment?
An F reorganization is a restructuring that lets a buyer purchase what looks like your company while the IRS treats it as an asset purchase. For your tax bill, it is still an asset sale.
The tax code describes it as a mere change in identity, form, or place of organization of one corporation. In plain terms, your company gets moved under a new parent, and the buyer buys the practice company out from under it.
This is where we see sellers get tripped up. The buyer gets their fresh basis because, for tax purposes, they bought assets. Your gain follows those same assets, so equipment recapture is still ordinary income to you.
Why agree to it? The practice entity keeps operating through the sale, which can make contracts and credentialing simpler for the buyer. If a buyer proposes one, treat it as an asset sale when you run your numbers, and price the deal accordingly.
The same goes for a buyer of your S corporation stock who asks for a 338(h)(10) or 336(e) election. Either one makes the IRS treat your stock sale as if the company sold all of its assets, so model it the same way.
When Should A Dentist Start Thinking About Structure?
The time to settle structure is in the letter of intent, well before closing week.
The LOI is where the buyer’s attorney writes “asset purchase” and sometimes sketches the allocation. Once you sign it, every later conversation starts from that page, and reopening it costs goodwill with the buyer (the other kind).
Ideally the work starts a year or two before you list, which gives you time to confirm your entity type, clean up the books so your dental practice valuation holds up, and decide whether the
building comes with the deal.
Our guide to selling a dental practice covers the sequence and the tax consequences of selling a dental practice post covers receivables and state tax.
If a buyer has started talking structure with you, book a call with the Virjee Consulting team and we’ll run both versions of your sale before you sign anything.
If you liked this, you might also like: Selling a Dental Practice on an Installment Sale
About the Author
Omar Virjee, CPA is the founder of Virjee Consulting, a CPA firm specializing in year-round tax planning and monthly bookkeeping for solo and small-group dental practice owners across the United States. Omar focuses on helping dentists maximize owner take-home pay through proactive tax strategy, S-Corp optimization, dental real estate planning, and clear monthly financials.
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