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Dental Lending Federal Capital Gains tax Interest rates Practice Sales Update

Update on Practice Sales

Interest rates have been fixed at an historic low rate for several years now and the Dental Lending institutions are plentiful.


By Philip Kempler, DMD, Broker

The Importance of Interest Rates

Since I sold my dental practice in 1992 and became a Dental Practice Broker, the value of dental practices have had several ups and downs. The market hit bottom in 1997, when we saw many practices being sold for as low as 50% of one year’s gross collections. Fortunately, 1998 saw a slight upturn which continued through 1999. This was primarily due to low interest rates and the emergence of several dental finance companies which made money available to dentists for practice acquisition. The low rates allowed the selling dentist to command a higher price for his practice since the Buyer’s loan payments would be lower. There are several Dental Lenders now in the marketplace who are all competitive such as Bank of America, Wells Fargo, Lendeavor and Home Street Bank.  Call and we can give you the scoop.

Our Current Situation

This atmosphere has now reoccurred and has been present for the last several years. Interest rates have been fixed at an historic low rate for several years now and the Dental Lending institutions are plentiful. This means Sellers can get more dollars for their practices now more than ever before. It is a great time to sell if you are ready (see my article on “Emotional Aspects of Selling a Dental Practice” to help determine if selling is right for you). The loans we have been getting for Buyers are 100% financing (no money down), fixed rates, equally amortized, no points, and very low fees to do the loan, usually $650 or less.

While this is great news for the Seller, this is just as good for Buyers. Rates as of today are the lowest I’ve seen in 27 years meaning more expensive practices are now more affordable. For example, a practice that sold for $600,000 at the beginning of 2020 would have payments to the Buyer of approximately $6,000 per month on a 10 year loan. For the same payment today, the Buyer could afford a practice of almost $650,000.

Consider the Tax Consequences

Another important consideration in selling your practice is that of keeping as much of the sales price as possible. The Seller must consider the tax consequences to be paid upon the sale of the practice. In  2019, the federal  Capital Gains tax  decreased to 21%. A Seller should try to get the majority of the sales price as capital gains, not ordinary income. Comprehensive tax reform will be discussed and no one, including Congress, knows what will happen. It is vitally important that the allocations of the purchase price be structured to best limit the taxes paid.

What does all this mean? Well, if you have no intention of selling in the near future, nothing. But if you are thinking of selling your practice soon, earlier may be better than later.

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