Dental Practice Startup Costs: New Practice vs Acquisition and How Each Is Deducted

Opening a dental practice in South Florida runs roughly $500,000–$800,000 for a scratch startup, and buying an existing practice often costs a similar amount. The tax outcomes could hardly be more different: the startup's dollars mostly land in equipment and buildout that modern depreciation rules let you deduct shockingly fast, while the acquisition's dollars mostly land in goodwill that trickles out over 15 years. Neither is automatically better — but you should know what you're buying, tax-wise, before you sign either lease or LOI.

Key takeaways

• True "startup costs" under IRC §195 (pre-opening investigation and setup expenses) get only $5,000 deducted immediately, shrinking once total startup costs pass $50,000; the rest amortizes over 180 months.
• Equipment and most buildout are not §195 costs — they're depreciable assets, and with 100% bonus depreciation now permanent, most of a scratch startup's spend can be deducted in year one.
• Qualified improvement property (QIP) — most interior buildout of leased space — is 15-year property eligible for bonus depreciation. Plumbing operatories correctly is a five-to-six-figure tax question.
• In an acquisition, the purchase price is allocated under IRC §1060: equipment (fast deductions) vs. goodwill and non-competes (15-year amortization). The allocation is negotiated, adversarial, and binding.
• Year-one deductions are only worth something against income. A startup with six months of ramp-up losses may want to slow down depreciation, not maximize it.

Scratch startup: where the money goes and how it's taxed

A typical from-zero budget: leasehold buildout ($200,000–$400,000 — dental plumbing, medical gas, lead-lined walls for imaging, cabinetry), equipment ($150,000–$300,000 — chairs, delivery units, imaging, sterilization, possibly CBCT or CAD/CAM), technology and software, initial supplies, working capital for the ramp-up months, and the soft costs: consultants, travel to scout locations, staff training before opening, pre-opening marketing.

The tax code sorts this spend into buckets with very different speeds:

Bucket 1 — §195 startup costs. Expenses that would be deductible if you were already operating, but were incurred before the practice opened its doors: market studies, site-selection travel, pre-opening staff wages and training, pre-opening advertising, consultant fees for getting the practice ready. You may deduct $5,000 in year one, reduced dollar-for-dollar once total §195 costs exceed $50,000, with the remainder amortized over 180 months starting with the month the practice opens. Organizational costs of forming the PLLC or PA get a parallel $5,000/$50,000/180-month treatment under §248/§709. The planning point: costs incurred after opening are just ordinary expenses — so where timing is genuinely flexible (a marketing campaign, a training program), landing it after your first patient date converts a 15-year amortization into a current deduction.

Bucket 2 — equipment and furnishings. Chairs, imaging, sterilizers, computers, furniture — all depreciable personal property, and all eligible for 100% bonus depreciation (now permanent for property acquired and placed in service after January 19, 2025) or Section 179 expensing (2025 limit $2.5 million, indexed). Either route, the practical answer is the same: essentially all equipment can be deducted in the year the practice places it in service.

Bucket 3 — leasehold buildout. Interior improvements to a leased nonresidential space generally qualify as qualified improvement property (QIP) — 15-year recovery, bonus-eligible, meaning most of a $300,000 buildout can also be deducted in year one. Exceptions hide in the details: costs attributable to enlarging the building, elevators, or structural framework don't qualify, and some site work sits outside QIP. A cost segregation-style breakdown of the contractor's invoice — separating QIP, personal property (cabinetry and equipment-like items), and non-qualifying structural work — is worth doing while the invoices are fresh.

Bucket 4 — financing and intangibles. Loan fees amortize over the loan term; interest is deductible as accrued/paid. Practice management software subscriptions are current expenses.

The Florida footnote: Florida repealed its sales tax on commercial rent effective October 1, 2025 — leases that used to carry a state tax on every rent payment no longer do, a modest but real improvement in the occupancy-cost math for new offices.

The loss-timing caution. A startup that opens in September and loses money through spring doesn't benefit from a $500,000 year-one depreciation deduction the way a profitable buyer does. Losses may carry forward (limited to 80% of future income for NOLs, and subject to excess-business-loss limits at the individual level). Sometimes the smarter move is electing out of bonus depreciation for a class of assets and spreading deductions into the profitable years at your highest brackets. This is precisely the kind of modeling to run before filing, because bonus elections are made on the return.

Acquisition: same money, slower deductions, faster revenue

Buying an established practice trades tax speed for cash-flow certainty: you inherit active patients, staff, and collections from day one. Tax-wise, nearly all acquisitions of PLLC/PA practices are structured as asset purchases, and the purchase price is allocated among asset classes under IRC §1060, reported by both parties on Form 8594 (which the IRS matches — the allocations must agree).

Where the dollars land:

• Equipment and furnishings — depreciable at fair market value; bonus-eligible even though used, since bonus depreciation applies to used property that's new to you. The buyer wants this number high.
• Supplies on hand — deductible as consumed; usually a modest allocation.
• Patient records, trade name, and goodwill — §197 intangibles, amortized straight-line over 15 years. This is typically 60–80% of a practice's price, which is why an acquisition deducts slowly: $500,000 of goodwill yields about $33,000 per year.
• Covenant not to compete — also a 15-year §197 intangible for the buyer regardless of the covenant's actual length (and ordinary income to the seller — one reason sellers want this allocation small).
• Accounts receivable — often retained by the seller or purchased at face; if purchased, collections against them aren't income to you beyond what you paid.

The negotiation is zero-sum: every dollar shifted from goodwill to equipment speeds the buyer's deductions and worsens the seller's result (equipment gain is ordinary §1245 recapture; goodwill is capital gain). Realistic FMV appraisals of the equipment keep the allocation defensible on both sides.

§195 still applies to your own pre-closing costs in an acquisition — due-diligence consultants, travel, pre-takeover training — same $5,000/180-month rules. Transaction costs of the acquisition itself (legal fees for the purchase agreement, broker fees) generally must be capitalized into the assets acquired rather than deducted.

Choosing between the paths

The startup deducts fast but earns slow; the acquisition earns fast but deducts slow. Model both on after-tax cash flow over five years — with 100% bonus and QIP treatment, a scratch startup's year-one-to-three tax profile is far stronger than most buyers assume, while an acquisition's 15-year goodwill drag is partly offset by walking into immediate collections. The right answer is usually about your risk tolerance and the specific opportunity, with tax as the tiebreaker — but it's a tiebreaker worth computing honestly.

Official sources

• IRS — Startup and organizational costs (Pub. 583): https://www.irs.gov/publications/p583
• IRS — Form 8594, Asset Acquisition Statement: https://www.irs.gov/forms-pubs/about-form-8594
• IRS Publication 946 — How to Depreciate Property (bonus, §179, QIP): https://www.irs.gov/publications/p946
• Florida DOR — Sales tax on commercial rent (repeal effective Oct. 1, 2025): https://floridarevenue.com/taxes/taxesfees/Pages/sales_tax_rental.aspx

Practitioner note: Ask your contractor for an invoice broken out by trade and component before final payment. Reconstructing a QIP-vs-structural split from a single "buildout — $340,000" line two years later costs more in fees than the courtesy of an itemized bill costs the contractor.

Fairlight builds the year-one cost schedule, models bonus-depreciation elections against your ramp-up, and reviews Form 8594 allocations on acquisitions — for startups and buyers across South Florida, including relocating Canadian dentists with cross-border tax layers. Contact us or see pricing.