The Restructuring of a Medical Practice Property Ownership
Written by Sarah Fordyce
Client Overview
The medical practice consisted of a partnership of seven doctors. The partnership also owned the commercial building the practice operated out of.
The Opportunity
The partnership was planning to move buildings to another location but needed assistance deciding whether they wanted to hold or sell the property. After RDG’s initial assessment, the partners decided they wanted to sell. However, the partners could not agree if they wanted to defer the immediate tax impact with a like-kind exchange or if they wanted to pay the taxes upfront with the proceeds from the sale. The partnership needed to agree on how they wanted to handle the sale, because the property was owned by the entity not the partners themselves.
RDG stepped in and held a meeting with all seven partners to detail the options available and the next steps the partnership needed to take.
The Solution
In order to reconcile the difference of opinions, RDG stepped in and held a meeting with all seven partners to detail the options available and the next steps the partnership needed to take. In the end, RDG helped the partners understand that in order for each partner to make their own decisions regarding the proceeds of the sale, the property needed to be owned by each partner, not the entity. To make this change they need to complete a “drop and swap” transaction to restructure the ownership of the property.
The clients decided they wanted the flexibility of the “drop and swap” option. This strategy allowed each partner to receive their desired outcome from the property sale and not be impacted by other partners’ choices. To further assist the clients, RDG completed a sales and cash flow analysis for each partner.
The Outcome
The partnership saw a positive outcome after retaining RDG. The restructuring of the property ownership allowed some partners to keep an investment in real estate without recognizing a gain on the sale and others to report the gain on the sale and receive immediate profits.