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Selling a dental or medical practice: what the DSO offer really nets you

Most practice sales today are asset purchases by a DSO, MSO or private-equity group, with a rollover equity piece. The cash is taxed, the rollover usually is not, and the allocation decides whether goodwill (20%) or equipment (37%) carries the number.

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The number

What this sale costs if nothing is planned

A $3,000,000 practice sale: $2.4M cash + $600K rollover equity, single-owner S corp, California, 2026

Layer	Rate (source below)	Amount
Goodwill portion of the cash (say $1.9M)	15% / 20% + 3.8%	about $450,000
Equipment and supplies recapture ($300K)	ordinary, up to 37%	about $110,000
Non-compete / consulting ($200K)	ordinary + payroll	about $80,000
Rollover equity ($600K)	deferred if structured as a Sec. 351/721 contribution	$0 now
California on the cash	9.3% to 12.3%	about $250,000
Total year one		about $890,000 (37% of cash)

Rounded, illustrative, assumes no other income in the year of sale. See Sources and review at the bottom of the page.

The options, in plain language

Five ways this tax gets paid, spread or shrunk

Fix the allocation first. Every dollar that moves from equipment or the covenant into goodwill saves 17 points. The buyer wants the opposite. This is negotiated, not calculated.
Installment the goodwill. A Section 453 installment sale (or structured installment sale with an insurer paying you) spreads the goodwill gain and often keeps each year under the 20% bracket and the 3.8% NIIT. Recapture is still year one.
Keep the rollover deferred. Rollover into the buyer's holding company is usually tax-free only if it is a contribution, not a sale-and-reinvest. Get the tax opinion before signing.
Sell the building separately. The real estate you own under the practice can be 1031-exchanged or leased back. Do not fold it into the practice price.
Charitable remainder trust. For a charitable owner, a CRT funded with a slice of the practice before the LOI removes that slice from the gain and pays income for life.

Who this is written for: people who have owned the asset for years, often decades, and are selling once, usually around retirement. If you are buying and selling frequently, different rules (dealer status, ordinary income) apply and this page is not for you.

Six questions to bring to your CPA

What does the LOI allocate to goodwill, equipment, supplies, non-compete and consulting?
Is the rollover a tax-deferred contribution or a taxable reinvestment?
What is my equipment basis after Section 179 and bonus depreciation?
Year-one tax with 100% cash vs 40/60 installment?
Is the building in the deal, and should it be?
Which tax year should the closing land in?

The deadlines that decide it

Allocation: negotiated before the purchase agreement.
CRT: funded before a binding agreement.
Rollover: tax opinion before closing.
Estimated tax on the cash: the quarter of closing.

Common questions

Straight answers

Is a DSO or MSO sale different from a private buyer?

The structure is: asset purchase plus rollover equity plus an employment agreement. Each piece is taxed differently.

Is the employment or consulting agreement part of the price?

It is taxed as wages. A high salary offer with a low practice price is a tax transfer from you to the buyer.

Can I 1031 the practice?

No. Only the real estate.

What about my retirement plan?

A 401k or cash balance plan can absorb a large deductible contribution in the closing year if the plan is set up before year end.

Audit trail

Sources and review

Reviewed for the Retirement Literacy Foundation, a 501(c)(3) education nonprofit. Prepared by Hans Goldstein, retirement educator; IRS Special Enrollment Examination Parts 1, 2 and 3 passed, enrollment pending; California licensed insurance professional #4273294. Informational only. Not tax, legal or investment advice. Every figure below cites its source so your CPA or attorney can check it.

Capital gains rates and brackets 2026: IRS Rev. Proc. 2025-32 (2026 inflation adjustments); IRC 1(h)
Net investment income tax 3.8%: IRC 1411; thresholds $200,000 single / $250,000 MFJ, not indexed
Depreciation recapture 25% (unrecaptured 1250) and 1245: IRC 1(h)(6), IRC 1245, IRC 1250; IRS Pub. 544
Section 121 home-sale exclusion: IRC 121; IRS Pub. 523; surviving-spouse 2-year rule IRC 121(b)(4)
1031 exchange rules: IRC 1031 (real property only after TCJA 2017); Treas. Reg. 1.1031(k)-1 (45/180 days, QI); IRS Form 8824
Delaware Statutory Trust as 1031 property: IRS Rev. Rul. 2004-86
Installment sales: IRC 453; IRS Pub. 537; Form 6252; IRC 453A interest charge above $5,000,000; IRC 453(k) excludes publicly traded stock
Monetized installment sales: IRS Dirty Dozen (IR-2023-54 and later); proposed regs REG-109348-22
QSBS: IRC 1202 as amended by P.L. 119-21 (2025): $15M cap, tiered holding periods for stock issued after July 4, 2025
Charitable remainder trusts: IRC 664; Treas. Reg. 1.664; pre-arranged sale doctrine (Rev. Rul. 78-197)
Step-up in basis: IRC 1014; community property IRC 1014(b)(6)
Inherited IRA 10-year rule: IRC 401(a)(9)(H) (SECURE Act); Treas. Reg. 1.401(a)(9) final regs 2024
California treatment: Cal. Rev. & Tax. Code 17041 (rates), 18031 (1031 conformity), FTB Form 3840 (out-of-state exchange tracking); Prop 19 (Cal. Const. art. XIII A, sec. 2.1)
Purchase price allocation: IRC 1060; IRS Form 8594

Figures are 2026 federal amounts and 2025 California rates unless stated. Examples are illustrative, rounded, and assume no other income; your numbers will differ. Last reviewed September 21, 2026.

Selling a dental or medical practice: what the DSO offer really nets you

What this sale costs if nothing is planned

Five ways this tax gets paid, spread or shrunk

Six questions to bring to your CPA

The deadlines that decide it

Straight answers

Is a DSO or MSO sale different from a private buyer?

Is the employment or consulting agreement part of the price?

Can I 1031 the practice?

What about my retirement plan?

Sources and review

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