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Dentists Want More From Vacation Homes

Second Houses Can Trigger Tax Relief

Second Houses Can Trigger Tax Relief for Dentists - Bright Dental CPAs - Ohio Accounting Firm

If you rent your vacation home to friends and family at a cost that’s less than what is considered to be a fair rental price during the weeks you are not using it, it’s considered personal use property, which allows you to deduct real estate taxes and mortgage interest as itemized deductions on your personal tax return.

There will come a point in your dental career when you will have finally paid off your student loans, updated your equipment, remodeled your practice and have secured a large, dependable customer base. This will be a pinnacle moment in your life and certainly cause for celebration. Oftentimes, dental professionals choose to celebrate such an accomplishment by making a large purchase – a tangible representation of their professional success. For many, a second home not only becomes a symbol of their achievement, it can be a useful (and potentially lucrative) investment that can bring added tax benefits.

Read Also: Debunking Common Personal Finance Myths For Dentists

I frequently field questions from clients who want to know more about their tax implications with regard to purchasing a vacation home. Below are some common scenarios to consider, based on the insight I have provided to dental professionals in the past.

Change The Scenery

If you rent your home 14 days out of the year or less and use the home for personal use for 14 days or more, the property will be classified as personal use property, which allows you to deduct your real estate taxes and mortgage interest as itemized deductions on your personal tax return. In addition, if you rent your home out to your dental practice for meeting space a few times a year (fewer than 14 days), your practices can take a deduction for the expense of renting the property. Just make sure that the business purpose of the space is clearly defined.

Generate Extra Income

Rather than buy a vacation home that sits empty for the majority of the year, you may find that it makes sense to rent it out to others while you aren’t using it. If you do decide to go this route and rent it for more than 14 days of every year, remember that all income generated as a result of this transaction is taxable. That being said, a portion of the mortgage interest and real estate taxes may be deductible as rental expenses while some of your other expenses could qualify as itemized deductions. You might be able to take depreciation on the property as well. Furthermore, rental losses are limited based on your adjusted gross income and are carried forward during the years in which the loss cannot be taken. This whole process can get confusing. Therefore it’s important to sit down with your tax advisor to ensure that Uncle Sam gets his cut.

Welcome Friends

So you aren’t really on board with the prospect of renting your vacation home to strangers while you are away, but you really don’t like the idea of letting the house sit empty either. In this case, you might consider renting the property to friends and family. If you take this route and rent it at a cost that’s less than what is considered to be a fair rental price during the weeks you are not using it, it’s considered personal use property, which once again allows you to deduct real estate taxes and mortgage interest as itemized deductions on your personal tax return.

Four Interesting Facts To Know Before You Buy

If you are struggling to figure out which state you should consider as the location of your second home or whether investing in a piece of land, timeshare or even a mobile home is more favorable to your specific situation, consider these interesting tax facts.

  1. If you decide to invest in a portion of land on which to build your home then, for whatever reason, change your mind and decide to sell the property prior to personal use, the gains or losses would receive capital gain or loss treatment. On the other hand, if you buy the land, build a home, and, after a while, decide to sell it at a loss after having used it personally, you will not be able to claim the loss on your tax return.
  2. Ever wonder if that boat, mobile home or house trailer qualifies as a second residence for purposes of the mortgage interest deduction? Good news – it does! That is, it qualifies for the deduction as long as it includes sleeping, cooking and bathroom facilities.
  3. Looking to purchase a vacation home far from the obligation of state income taxes? Then look no further than Florida, Texas, Alaska, Nevada, South Dakota, Washington, Wyoming, New Hampshire or Tennessee. These states don’t have a state income tax, which could lower the tax impact on your rental income and any gains realized from the sale of a piece of property.
  4. Listening to a salesman pitch the benefits of owning a timeshare can be terrifying, but taking the plunge and making the investment doesn’t have to be – at least from a tax standpoint. Timeshares can be considered second homes for the purpose of deducting interest expenses. However, if you decide to rent the timeshare to a third party, you may end up forfeiting the mortgage interest deduction. Another common misconception about timeshares is that letting a charitable organization stay there for a period of time will qualify as a charitable contribution. This is not the case. The only way to get a charitable deduction for your time share is to donate the entire property to a charity.

Want to find out if owning a vacation home is right for you? Email the Bright Dental CPAs at Rea & Associates today.

By Dan Bialek, CPA (Mentor office)

Want to master the various stages of your dental career?
These article may provide some insight.

What To Expect From Your Career In Dentistry
Factors In Determining Dentist Compensation
What To Consider When Purchasing A Dental Practice

Put Together An Amazing Dental Advisory Team

Business Advisory Team - Bright Dental CPAs

Not only should your advisory team be experts in their respective fields, they should understand the unique challenges dentistry professionals face every day and the complexities that are associated with dental practice ownership.

As a recent dental school graduate you probably have the next couple of years all mapped out. It’s likely that your first priority is to identify a community to establish your personal and professional roots. Next, you are probably going to want to put your skills to work. But what does that look like?

Read: Dentistry: It’s Not All White Coats and Drills

If you dream of establishing your own dental practice, your best bet is to start by compiling a team of professional advisors. Not only should your advisory team be experts in their respective fields, they should understand the unique challenges dentistry professionals face every day and the complexities that are associated with dental practice ownership.

Trust Your Gut

When you work with a service provider, essentially you are entering into a long-term relationship. Therefore, it’s not only important to identify those who are best suited on a professional level to make up your business team; you also need to consider whether their personalities sync with yours.

Choose to work with someone who not only has your best interest in mind, but who is someone can get along with personally – only you will know whether you will work well with a particular attorney, accountant, or banker. So while it’s always a good idea to ask for recommendations, make sure you get the final say when it comes to making up your team roster.

Do They Really Know What They’re Talking About

You wouldn’t hire an automobile mechanic to act as your Legal Counsel in court, so why would you allow a professional with little-to-no experience in the dental industry help manage your dental practice? It’s so important for up-and-coming dentists to work with professionals who have a solid track record of success in the industry you are pursuing. Working with industry specialists who are able to collaborate with each other – without hidden motives or agendas – will also help you identify the best solutions for any challenge you may face as a business owner as each advisor will be able to bring a unique perspective to the conversation, which will help you see the bigger picture.

When you are able to compile a team of professionals who are not only experts in their respective fields, but who can also offer solid experience in dentistry, you have the ingredients needed for success.

Email the Bright Dental CPAs at Rea & Associates at Rea & Associates to learn more.

By Alan Hill, CPA (Mentor)

 

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Your Practice’s Free Valuation Could Come At A Hefty Price

Dental Practice Valuations

It has become a popular business model for some companies to contact prospective or existing business clients to offer them a free business valuation report. But what the sales rep won’t tell you is just how expensive these free services can be. In the end, you are just throwing your hard-earned money down the drain.

Owning a dental practice is just as mentally taxing as maintaining any other economically viable business. It’s no wonder you often daydream about innovative ways to cut office expenses and jot down ideas to generate revenue on napkins over dinner. At some point you will come to terms with the fact that, in addition to helping people, your ultimate business goal is to increase your practice’s overall value while making sure you can save enough for your own retirement.

What would you do if someone approached you about conducting a free business valuation on your dental practice? The easy answer is to say “yes,” right? After all, you are probably well aware of how important a business valuation is to the success of your practice – not to mention your own financial future. So, naturally, it doesn’t make sense to turn down this free offer … or does it?

Read Also: What To Expect From Your Career In Dentistry

Is ‘Free’ Worth It?

It has become a popular business model for some companies to contact prospective or existing business clients to offer them a free business valuation report. But what the sales rep won’t tell you is just how expensive these free services can be.

I recently met with an insurance representative who mentioned that he provides clients with free business valuations. This particular company had CPAs and valuation professionals on staff and would prepare these valuations with just the answers they collected from a five-minute questionnaire and three years’ worth of their financial data. Within a few days, their client would (supposedly) have a clear picture of what their business was worth.

After hearing about their method, I had even more questions. After all, having conducted thousands of business valuations myself, I knew something didn’t quite add up. So I asked to have a look at the valuation report this company typically presented to their clients and, within minutes of reviewing the document, the company’s motive became crystal clear.

Not only was this sales rep giving clients inaccurate information, he was grooming them to purchase more insurance than they actually needed. A transaction that would have resulted in you paying much more than you could have anticipated. On the other hand, when you work with a business valuation expert your practice actually stands to make significant gains.

When you hire a business valuation expert, you are hiring a professional who will take the time and energy to really get to know you, your dental practice and its prospects for the future.

Not Free, But Priceless

Email the Bright Dental Team to find out how our business valuation experts can help you grow and better manage your dental practice. The benefits of a Know & Grow Valuation include general business planning, succession planning and financial planning, buy-sell agreement values, exit planning strategies, and more.

By Tim McDaniel, CPA/ABV, ASA, CBA (Dublin office)

 

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Rea & Associates, Inc. | Bright Dental CPAs | 7201 Center St, Mentor, Ohio 44060-4858
phone + 440-266-0077